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banner Wednesday, 30 May, 2001, 15:06 GMT 16:06 UK
AOL's love and hate of Microsoft
AOL is one of the world's biggest internet companies
AOL is one of the world's biggest internet companies
America Online is one of the biggest, richest and most successful internet companies in the world.

Its merger with media giant Time Warner established its reputation as the key player in the internet economy.

It is one of the few internet companies to have figured out how to make money on the web - by charging people subscriptions to sign up to their services and raising advertising revenue.

AOL had already established itself as a rival to Microsoft as early as 1999 when it bought Netscape, the internet software company that was Microsoft's bitter rival in the browser war.

Steve Case and Gerald Levin sealed the deal for AOL and Time Warner
Steve Case and Gerald Levin sealed the deal for AOL and Time Warner
However, AOL did also do a deal with Microsoft to use Internet Explorer as its default browser, in return for AOL getting an icon on the Microsoft desktop.

This was crucial in building AOL's market share in the second half of the 1990s, helping AOL become the world's largest internet service provider, with an estimated 29 million subscribers.

The AOL/Microsoft browser deal became a key issue in the US antitrust case against Microsoft.

America Online
Headquarter: Dulles, Virginia
Founded 1985
Employees: 15,000
2000 revenue: $6.89bn
World's largest online service
Most popular e-commerce platform
24m AOL members
2.8m CompuServe members
4.4m international members
AOL and Microsoft are now in negotiations about extending this pact.

But while the two companies may appear to collude, they are mostly bitter rivals. In late May, Microsoft launched a a $50m advertising campaign designed to woo customers from AOL to sign up with Microsoft Network.

But it is in the area of instant messaging that the two compete most fiercely. Last year, Microsoft chairman Bill Gates rang senior members of the Federal Communications Commission urging them to investigate AOL's dominance in instant messaging software.

Pioneering Netscape

It was AOL's takeover of Netscape in 1999 that first really shook Microsoft.

Netscape was the pioneering company in the field of internet browsers, providing the first mass market and user-friendly software for people to surf the vast amounts of information on the internet.

It was its rapid growth, and the threat that browsers could replace operating systems like Windows as key platform for personal computing, which caused Microsoft to use rough house tactics to get its Internet Explorer browser into a market leading position.

The rise and fall of Netscape

James Barksdale became Netscape chief executive in 1995 and was at the helm during the browser battles, which led to the launch of the anti-trust trial in 1997.

The key events are, according to Barksdale's testimony, that Netscape released the first beta version of its Netscape Navigator 1.0 browser in October 1994 and that in December 1994 the final version was released.

Jim Barksdale
Jim Barksdale led the campaign against Microsoft
Following increasing media criticism that Microsoft was falling behind in its adoption of the internet, in December 1995 Gates announced that Microsoft was now taking the Internet seriously, and that its Internet Explorer browser, developed from Mosaic - the original web browser, would be free.

Windows licence threat

Netscape wanted to get from Microsoft the same technical information that Microsoft distributed to all software developers to enable their products to work with Windows.

But Barksdale said he was told that Microsoft wanted Netscape to stop development of a Windows 95 browser (which was seen as the largest potential browser market), in return for Microsoft agreeing to give Netscape a clear run at the relatively small browser markets for Windows 3.x, MacOS and Unix.

Microsoft said it was also willing to make an investment in Netscape, and wanted a seat on the board, but Netscape refused the market-splitting suggestion. According to Mr Barksdale, this triggered Microsoft's considerable wrath.

James Barksdale's testimony described how "Microsoft began to use its market power to extract exclusionary deals with many of the largest [PC manufacturers and internet service providers]", threatening Netscape customers such as Compaq, which tried to replace the Internet Explorer icon with the Netscape Navigator icon on its Presario range of computers. Microsoft threatened to withdraw Compaq's Windows 95 licence.

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