Sun, Jun 17, 2001 page11

• MSN may gain if AOL is not part of Windows XP

  SOFTWARE Microsoft is still wrangling over terms for including AOL's Internet service in Windows XP, but disputes are being raised over market considerations

  • BLOOMBERG
  • • 
    • 
    • 

  Microsoft Corp's MSN Internet-access business may benefit at the expense of AOL Time Warner Inc if the companies abandon an agreement to bundle AOL software with the Windows operating system, analysts said.

  The two companies are still wrangling over terms for including AOL's Internet service in Windows XP, the biggest overhaul of the operating system since 1996, when the companies first combined the products. Windows runs 90 percent of personal computers.

  If AOL's service isn't rolled into Windows XP, the company may lose business to MSN because some customers won't look beyond their desktops to find an Internet provider, analysts said. Just as the largest software maker prepares to push more aggressively into AOL's territory by making its products more Internet-compatible, AOL would lose an avenue of growth that helped buoy subscribers to more than 29 million from 5 million in 1996.

  "If AOL is not there and MSN gets some kind of proprietary treatment, it benefits MSN," said Jefferies & Co. analyst Fred Moran, who has a ``buy'' rating on shares of AOL Time Warner.

  America Online probably gets a small percentage of its new subscribers through Windows, said Moran, who didn't have an exact estimate. Microsoft's MSN service, the second-largest US Internet access provider, has more room to grow.

  MSN has doubled subscriptions in the past year to more than 5 million. The company has tried to bolster growth by offering incentives such as rebates on PCs if buyers sign up for MSN.

  The shares of New York-based AOL Time Warner rose US$0.49 to US$50.90 on Friday. They've risen 46 percent this year. Microsoft shares fell US$0.88 to US$68.02 and have gained 57 percent in 2001, the best performance in the Dow Jones Industrial Average of 30 companies.

  Microsoft spokesman Jim Cullinan said the companies need to reach an agreement soon for America Online's software to be included in Windows XP, because work on the operating system must be completed this month to meet production deadlines. Redmond, Washington-based Microsoft plans to release Windows XP Oct. 25.

  "Discussions are still ongoing," Cullinan said yesterday. "The deadline is coming quickly."

  He declined to elaborate. AOL Time Warner spokesman Jim Whitney declined to comment.

  Cullinan said MSN would be included in Windows XP, as it has in older versions of the software. He wouldn't say if the company agreed to put any other Internet service providers on the software.

  America Online ``doesn't really use the desktop to get consumers,'' America Online Chairman Barry Schuler said on Tuesday.

  He said he didn't know if the company would reach an agreement with Microsoft.

  "We have been partners and competitors for many years," he said. "If we have a deal with them, that's great. If not, that's fine." While the companies' rivalry isn't new, Microsoft has in the past year become more aggressive in its efforts to boost MSN's customers and sales. Microsoft's changes in Internet strategy make it less likely that the two companies will find themselves compatible partners, analysts said.

  During the negotiations over the bundling, Microsoft requested that AOL agree to not lobby lawmakers, complain to antitrust enforcers, or sue the company about Windows XP, people familiar with the talks said last week. AOL initially balked at that request, the people said. Officials from both sides have declined to comment on that request or other issues that are being negotiated.

  The negotiations have gone on as Microsoft awaits a verdict in its appeal of a federal judge's ruling to break the company in two.

  At the same time, the company said it will spend US$50 million on ads urging America Online customers to switch to MSN because AOL is raising rates.

  The company also is looking to woo users of AOL's popular instant-messenger program though software that can make telephone-like calls to PCs.

  Other products that would compete with AOL include services such as digital-photo developing and travel reservations that are part of Microsoft's .Net Internet strategy for using the Web to connect PCs, Web sites and electronic devices.

  Some analysts said AOL might one day end up being bundled with Windows even if the current round of talks fail.

  The America Online software could be wrapped into later versions of the program, said JP Morgan analyst Paul Noglows.

  America Online could also sign agreements directly with PC makers to get the software on their machines.

  "The jury is still out on whether it will happen," said Christian Koch, an analyst at Trusco Capital Management, which owns shares of Microsoft. "My bias is that AOL locks themselves out of the long-term business opportunity if the talks fail."
• Most Popular

  • 1

    Chinese carrier group entered Japanese waters

  • 2

    Magnitude 6.4 earthquake hits Hualien County

  • 3

    Think tank hosts war games in Taipei

  • 4

    Students rescued from Cambodia

  • 5

    Home sales agent tops average wage list of TWSE