Microsoft Trial Update: AOL E-mails Discount Impact Of Microsoft Deal - InformationWeek

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Microsoft Trial Update: AOL E-mails Discount Impact Of Microsoft Deal

WASHINGTON, D.C. -- Microsoft Corp. lead attorney John Warden on Wednesday brought to light several E-mails from America Online's internal E-mail system in an attempt to prove that Microsoft Corp.'s 1996 deal with AOL did not stifle competition in the online marketplace.

In the seventh day of the Microsoft antitrust trial, Warden put forth a Jan. 9, 1996, E-mail from an AOL executive to AOL Chief Executive Steve Case and other AOL executives that noted the "opportunity to bundle" AOL's online service with Microsoft's Windows95 "may not be any more of an endorsement or select distribution than we already have."

The E-mail continued: "If we were to be a button on the [Windows 95] screen with a substantial non-compete or a repositioning of MSN [The Microsoft Network online service] clearly that is a whole different enchilada."

In a deal signed March 12, 1996, AOL agreed to use Internet Explorer as its default browser in its client software, while Microsoft agreed to bundle AOL in Windows and promote it in an "Online Services" folder.

Warden also entered into evidence a Feb. 6 E-mail from AOL analyst Andy Arnold regarding the potential deal that read in part: "Given that we are on every major consumer market computer, the upside is not as great as it sounds."

Microsoft has pointed out that at the time it inked the deal with AOL, the AOL online option was on the desktop of 90 percent of the consumer PCs being sold.

Warden asked if the Microsoft deal was such a bonanza for AOL, why did the online service provider continue to attempt to ink deals with PC OEMs?

AOL Vice President of Business Affairs David Colburn responded that one of the advantages of the deal for AOL was being tightly integrated into the Windows 95 Internet connection wizard, which sits in front of the online services folder on Windows 95.

When Warden asked if OEM agreements were more important to AOL's bottom line than the deal with Microsoft, Colburn disagreed, saying the Microsoft contract "created a lot of opportunity" and lowered the company's marketing costs.

Warden, however, produced AOL's fiscal 1997 10K financial results, which showed marketing costs increasing to $480 million compared with $450 million in the preceding fiscal year. Colburn countered that the full market penetration benefit of the deal did not take hold until the following year.

Warden also attempted to show that AOL users can still get and load rival Netscape Communications Corp.'s Navigator browser if they like despite the deal with AOL. However, Warden conceded that the user must be technically savvy to make the change.

Under the terms of the Microsoft contract, Internet Explorer must be "highly promoted and Microsoft must be the default browser," said Colburn.

When asked by Warden if Microsoft's Internet Explorer was selected as the default browser because it was "better componentized" than Navigator, Colburn agreed. However, he balked when asked if Microsoft had the better technology when the contract was signed.

Instead, Colburn said it was his "sense" that Internet Explorer was selected because it was better componentized to accommodate AOL.

Warden countered with a March 1998 deposition of Colburn testifying that Microsoft had the best browser technology when the agreement was struck. Warden is expected to continue to press Colburn Wednesday afternoon on the technical capabilities of Internet Explorer vs. Navigator.

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