Microsoft, Netscape, Compuserve, and AOL: It's the new distribution model

Well, it certainly has been a deliciously noisy week here in Lake Web-be-gone: a place where all the vendors are strong, the products are good-looking, and their unions get all above-average ink. The story in this morning's NY Times about cybernaughts queueing up to get their WorldNet disks in front of AT&T's headquarters was precious, not to mention the coup de desktop by AOL in snatching a piece of Win95 real estate from the jaws of Netscape. Today I'd like to feature the insights of Dirk Spiers. Dirk is president of Spiers, Ltd. a consulting firm and one of the founders of Infragence, a firm that helps companies understand business issues associated with the web and information infrastructures. Infragence is based in San Francisco and London. Here is his report:

These were interesting weeks. Every time it looks like Microsoft lost a war, it seems the opposite is true. This time they might have won more than just a few a battles: gaining AOL as a "distributor" and increasing the financial pressure on Netscape. The closer you look, the more you see Netscape in trouble.

Both CompuServe and AOL were offering "shelf space" to two companies -- Microsoft and Netscape. The result was a Dutch auction, where the highest bidder would be included in the product of the online service provider. What has happened is the online companies are now taking their distribution cues from the PC manufacturers, who use their hard drives as their shelf-space. This motivates many software vendors to sell crippled or feature-poor versions of their products, in the hope to make money when you upgrade to their "full" product.

Not too long ago (last year, in fact), both AOL and CompuServe had to buy companies mainly for their browser technology. But this time the online services had the upper hand. It was ironic that exactly the companies who were predicted to suffer most from the Internet had the upper hand during the negotiations. Nothing seems to be as it originally looked anymore.

This leads to the battle for the web. Netscape was always predicted to be the winner. It was the company which was supposed to turn the tables on Microsoft. This would be a real paradigm shift in the industry. Forbes ASAP, Upside, the Red Herring, all the smart magazines were full of stories about how Micorsoft would shrink against the smartness of Netscape.

For some reason, few people considered the affect of distribution and pure marketing muscle based not only on deep pockets. Many underestimated Microsoft. So what really happened this week? Netscape has done a deal with CompuServe and Microsoft has done a deal with AOL. But in this frenzy of hype, panic and fear a few facts are overlooked: As far as I understand, Microsoft's is the preferred (read default) browser option for CompuServe.

That deal was done some time ago and doesn't change. In fact a customized version of the Internet Explorer is part of Compuserve's new upcoming WOW consumer online product, due very shortly. The only thing which changes is that now CompuServe also offers Netscape Navigator as an option to their customers. But Microsoft is still the strategic partner and the default option.

It seems that AOL gets in return an icon on the Windows 95 desktop (just like MSN). Again I don't think much money changed hands.

To offer AOL an icon on the Windows 95 desktop must have been an easy point to concede. It will not cost anything to Microsoft and surely it must be the last blow against the DOJ inquiry into Microsoft. It will be interesting to see if they offer the same thing to CompuServe. CompuServe is more of a strategic partner and also a big customer of NT. What about Netscape's future? It might be rough going.Last week it was estimated that Netscape had 84% market share in the browser market against 4% for the Internet Explorer. Next year it might well be 50/50 if not more for Microsoft. Microsoft is using the same old tricks to cut off a competitor: distribution (bundling, integration, developers) and an economic war of attrition.

A few weeks ago, Microsoft came out with its first release web server. In a few months, this product will be an integrated part of the NT server operating system. What must have been chilling for Netscape is that this was (for Microsoft's standards) an uncharacteristically good 1.0 release. The trade press said that in performance and security options it was superior to what Netscape offered!

Netscape launched their new server line at their developers conference last week. What used to cost around $1300 two weeks ago is now being sold for $295. Their top of the line server will be bundled with a proxy server, a mail server, a news server, etc and sells for $4000. A more than significant decrease in price compared to what the equivalent products used to cost product by product.

I hate to be the person who is in charge of the P&L spreadsheets at Netscape. I reckon marketing and business plans are written in pencil these days rather than ink.

Will Intranets help Microsoft or Netscape?

Everyone is talking about Intranets these days. It is where the real growth is in the near future. It will even be more popular than the Internet, say major articles in leading magazines. But which company has the most power in those corporations? Microsoft. All those companies with Intranets will use Windows 95 or NT. When NT v 4 ships, both will come with Internet Explorer included, and if they run NT as a server, it comes with an integrated web server. Most of us use Microsoft Office (which soon includes the ex Vermeer Frontpage product). And finally all the IS managers grew up on OCX's and Visual Basic (not Java!). Microsoft has a very good chance to capture this market. Other companies which should have good inroads are the database companies and even Novell (if only they had a real Internet/Intranet offering).

What about AT&T? They are the only real wild card with their 80-some million long-distance customers and lots of Internet plans. They are clearly in the Netscape camp and will use the Netscape browser. But then AT&T is incredibly bad marketers when it comes to the online world. In fact AT&T is a graveyard of failed online products.

Maybe they should do more than just licensing the Netscape browser. They should buy the whole company and let Barksdale run the whole online product group. With real distribution and deep pockets Netscape can fulfill part of their initial promise.

AT&T can't afford to screw up once again. Now that would worry Microsoft. Someone will buy Netscape, AT&T needs them more than anyone else.

Self-promotions department

Thanks Dirk. All well-said. I've been busy getting ready for Interop, and wanted to tell you about a few sessions that I'll be moderating at the show in Vegas: one is a debate on the future of the Web between Dale Doughtery and Tim Bray, to take place Tuesday night at 6pm April 2. Another is a tete a tete between myself and Drew Major, one of the guiding lights behind NetWare, on Wednesday night at 6pm April 3. And also on Wednesday, you'll get to hear me speak about the future of document standards and HTML at 4pm. If you are going to the show, I'd love to see you at these or other sessions.

I've been using various wireless networking devices for several years and my latest analysis has been published by Decision Resources in a paper called: "Wireless LANs: Overcoming Obstacles." Unfortunately, if you'd like a copy, you'll have to send me your postal address because it isn't available electronically.

One thing you can read electronically is up this week in Web Review: some commentary by myself and others on the doings of Netscape, Microsoft et al.

This essay is composed in HTML and can be read in your browser. This is not always a simple process, and I'll be happy to provide help if I can. If you are getting this directly from me, or if someone is forwarding it to you, and you want to change that situation, let me know. Subscriptions are always free of charge.

David Strom
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