Microsoft, Netscape Browser News Won't Change Market

Last week's browser news -- the compromise between Microsoft Corp. and the U.S. Department of Justice on Windows 95 and Internet Explorer, and Netscape Communications Corp. offering free browser software -- won't have much impact on the market, according to analysts.

Last week's browser news -- the compromise between Microsoft Corp. and the U.S. Department of Justice on Windows 95 and Internet Explorer, and Netscape Communications Corp. offering free browser software -- won't have much impact on the market, according to analysts.

Most Netscape browser users are downloading the browser for free already and there's unlikely to be many people switching from another browser to Netscape's as a result, the analysts said in interviews late last week.

Users can easily download Netscape Navigator and the so-called "trial version" doesn't time-out, said Jeff Tarter, publisher of Softletter, based in Watertown, Massachusetts. "I've never paid for Navigator."

Meanwhile, most original equipment manufacturers (OEMs) are still planning to bundle Internet Explorer (IE) regardless of the alternatives Microsoft is giving them with Windows 95 licenses, under an agreement reached with the Department of Justice (DOJ). The agreement brings Microsoft into compliance with a Dec. 11, 1997 court order under which the software vendor must offer Windows 95 without requiring OEMs to also pre-install IE.

In fact, analysts said allowing Microsoft to leave IE code in the operating system and just remove the browser icon bolsters the vendor's case, which hinges on the argument that the browser is an integral part of the operating system and not just a separate product as the DOJ contends. The DOJ wants the court to find Microsoft in contempt for violating a 1995 antitrust consent decree that bars Microsoft from tying licensing of its operating system with that of another product.

"It's really a win for Microsoft. They were told to rip the browser out of the operating system, which makes the operating system inoperable," said Clay Ryder, chief analyst at Zona Research Inc. in Redwood City, California.

Now, Microsoft can comply if it makes the icon go away, so whether the browser icon is there or not is trivial, he said. "The agreement has furthered Microsoft's position that the browser really is part of the operating system."

"The DOJ had the chutzpah to claim victory," said Tarter of Softletter. "Actually, they won nothing."

By agreeing to the compromise, Microsoft has diffused the public criticism it received for being a "bully" in its licensing and being "arrogant" in snubbing the DOJ so blatantly, said David Cearley, a senior vice president at Meta Group Inc. in Stamford, Connecticut.

"They're refocusing the debate back onto the core issue, which is whether or not Microsoft has to ask the government for its opinion" on what should go into its operating system, Cearley said. "The heart of the case is that the DOJ doesn't understand software and Microsoft doesn't understand politics and didn't realize there would be public relations ramifications."

As far as Netscape's announcement that it would offer free browser software to users and developers, the analysts concurred that it was too little, too late.

"They've largely missed the window of opportunity when making a browser free would have strengthened their position," said Meta Group's Cearley. "They won't be able to win back market share."

"They may gain some market share, but they could lose revenue overall," said Rob Enderle, an analyst with Giga Information Group Inc. in Santa Clara, California. "They just walked away from about US$13 million in revenue."

However, one analyst said offering the Navigator source code for free could entice developers to create more products based on Netscape software, thus putting it in a more competitive position. "But Netscape can't control what [developers] are going to do with it," Tim Bajarin, president of San Jose, California-based Creative Strategies Inc., said of the source code.

Netscape should follow Microsoft's lead and try to get OEMs to bundle Navigator, said David Smith, vice president of Internet strategy for the GartnerGroup Inc. in Stamford, Connecticut. "Microsoft is on its way to eventually overtaking Netscape in the browser space," he said, predicting that this will happen in the first half of 1999.

While easily defeating its rivals in the market, Microsoft still faces its toughest opponent -- the DOJ -- in court. The software giant is pressing ahead with its appeal of the court order that requires Microsoft to offer Windows 95 to OEMs without requiring them to pre-install IE too. A hearing on the appeal is scheduled for Apr. 21. A brief on its case is due from Microsoft on Jan. 29, followed by one from the DOJ on March 2 and a response from Microsoft on Mar. 9, according to DOJ spokesman Michael Gordon.

Microsoft also has appealed a court decision to retain Harvard University law professor Lawrence Lessig as court-appointed special master. Lessig has been asked to review the evidence and advise the court by May 31. The DOJ is scheduled to file a court brief on the matter Jan. 27 and a response from Microsoft is due Jan. 30, Gordon said.

And more Microsoft scrutiny is in the works. The DOJ is continuing its investigation of Microsoft, which reportedly includes homing in on the software vendor's plans for the next major upgrade of Windows, Windows 98. Gordon at the DOJ confirmed the ongoing investigation, but would not comment on what additional products or practices of Microsoft the agency is probing.

One analyst had some advice for the DOJ.

"The DOJ is focusing in the wrong place if it is concerned about Microsoft leveraging its [dominant] position to gain market share," said the Meta Group's Cearley. The DOJ should instead investigate Microsoft's bundling and tying together of its BackOffice software with its Windows NT server products, as well as Microsoft's licensing programs to corporations across its product lines, he said.

"That has a much bigger impact than what they're doing with OEM licensing," Cearley said.

Microsoft, based in Redmond, Washington, can be reached at +1-425-882-8080 or on the World Wide Web at http://www.microsoft.com/.

Netscape, in Mountain View, California, can be reached at +1-650-254-1900 or at http://www.netscape.com/.

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