Wired In
Microsoft, AOL fight for control of spending on Internet

By John Yaukey
Gannett News Service

Ali vs. Frazier.

Microsoft and AOL are the giants battling for Internet customers.

Ford vs. Chevy.

You can add AOL vs. Microsoft to the list of great modern rivalries.

This match-up promises to be a slugfest for the ages for one simple reason: Both companies are ideally positioned to capture a lion's share of the as yet unfathomable amount of money consumers will spend on the Internet as online shopping, auctions, bill-paying, banking, gaming, music and movies continue to explode in popularity.

At stake in this contest is the future of the Internet and the way tens of millions of consumers use it.

Consider where these two giants already compete head to head: They're rivals as Internet service providers (ISPs), as Internet portals, in the browser market and in the wildly popular instant messaging arena.

This is much bigger than two ISPs going at it, said David Smith, an analyst with the Gartner research firm. It's about who is going to control huge amounts of information for huge numbers of people and how they're going to do it.

Downtown Honolulu resident Donald Graber, a retired accountant, has tried both. The former MSN subscriber switched over nearly two years ago, weary of what he considers MSN's cluttered user screen, overwhelmed by unwanted e-mail circulars and irritated by the pop-up ads. AOL has the ads, too, but in fewer numbers, he said.

"I e-mailed MSN and said, 'Please take me off any and all lists. I want nothing more from you,'" Graber said. "I want what I want, not what they want me to have."

Ultimately, AOL and Microsoft both want you to become a devout citizen of their respective digital empires, happily surfing and spending there — and nowhere else.

Each wants its icon prominently displayed on your computer desktop. And they each want to know the smallest details about your online life — your favorite Web sites, the music you like, your shopping habits, and of course all of the financial data they need to bill you for all of the merchandise they're going to try to sell you.

So how will all of this ambition, friction and competition affect consumers?

First, it helps to know the combatants, where they come from and what their plans are.

Goliath vs. Goliath

	AOL service plans
•	$23.90 a month for unlimited access
•	$239.40 a year for unlimited service, prepaid at $19.95 a month
•	$9.95 a month for five hours of service, with additional time priced at $2.95 an hour
•	$9.95 a month for customers of other ISPs who want unlimited access to unique AOL features
•	$4.95 a month for three hours of service, with additional time priced at $2.50 an hour
	MSN service plans
•	$21.95 a month for unlimited service
•	$9.95 a month for 20 hours of service, with additional time priced at $1.50 an hour

With those kinds of numbers, it can connect huge groups of people almost seamlessly through instant messaging and other member services, which is a formidable selling point.

And with its parent company AOL Time Warner behind it, AOL is loaded to the gills with some of the most popular content online: CNN, Time, Fortune and Warner Bros. to mention just a few of the major holdings.

Much of AOL's strength comes from its ability not only to market all of this content but also to deliver it through a service so familiar and easy to use, it has lured millions of technophobes online.

"I have helped several people in their 70s with zero computer experience open AOL accounts," said long-time AOL user Bernie Faller, of Louisville, Ky. None had problems using the service.

Ultimately, AOL wants to extend its reach and sell such a variety of content so that subscribers never have to leave its walled garden. And this is already happening. Many of its customers can do everything they want online within the confines of the AOL community: surf, shop, chat, trade instant messages, download music, fire off e-mail and send digital photos over the Web.

"This is what makes us the leading online service," said AOL's Jim Whitney. "We provide an unmatched experience."

In the technology corner, from Redmond, Wash., Microsoft remains the undisputed champion of the desktop. Its Windows operating system sits on 92 percent of computers, up from 87 percent two years ago despite a draining anti-trust case that continues to drag on in court.

With about 7 million subscribers, Microsoft's MSN online service may be a distant second to AOL. But the software company's dominance of the desktop gives it a unique vantage point from which to influence the evolution of the Internet and get into your life.

Microsoft's new XP operating system, due Oct. 25, for example, is designed to promote the company's Web-based tools while subtly discouraging the competition's. If you want to use an Internet browser other than Microsoft's Internet Explorer (IE), you're free to, but you'll have to remove IE and install the new browser yourself, which can be daunting for people who aren't comfortable with computers.

Ultimately, Microsoft sees XP as a key component in the company's larger .Net strategy that aims to roll most of what people want from the Internet into one package accessed through a single password and security system called Passport.

Picture your desktop computer alerting you that your flight has been delayed through an instant message to your cell phone, or your bank automatically notifying you before your account is overdrawn through your pager with an instant option to move funds.

According to Microsoft, the future of the Internet is all about ubiquity, continuity and hassle-free execution.

Ideally, you want a series of seamless, connected experiences — smooth from start to finish, said Windows Product Manager Tom Laemmel.

The .Net strategy is nothing less than sweeping in the way it proposes to integrate the Internet into daily life.

Stakes for consumers

The stakes for the wired masses in all this are considerable.

So far, AOL and Microsoft have already had a profound effect on:

• Compatibility. Nowhere is this more apparent than with instant messaging, one of the most popular applications on the Internet behind e-mail. AOL's Instant Messenger and MSN's Messenger service cannot communicate with each other, and this is not due to technical glitches. It's a Berlin Wall issue.

• Prices. Roughly half the American households online subscribe to either AOL or MSN, which gives them tremendous influence over other ISP pricing plans. AOL has been so successful in creating a popular branded online experience that — to the astonishment of many industry analysts — it has been able to raise rates (now the most expensive national dial-up service at $23.90 a month) while also increasing subscribership at a fairly impressive clip. This has paved the way for other Internet services such as EarthLink to raise rates as well.

• Choice. This is perhaps where consumers suffer the most.

By almost all accounts, the primary culprit here is Microsoft and its infamous habit of bundling only its own application programs with its operating systems so that if you want to use alternative software you have to get it and install it yourself.

For example, when XP is released, it will ship with Microsoft's Media Player software automatically installed. If you want to use the RealPlayer media software by RealNetworks, you're going to have to do some reconfiguring. Undoubtedly, this will discourage huge numbers of people from using RealPlayer. Consumer advocates believe the right way to do this is to give XP customers their choice of media and other applications as they're installing the new operating system.

Not to be outdone, AOL recently has been borrowing from Microsoft's playbook, cutting deals with computer manufacturers to make AOL the default Internet service offered on as many new computer systems as possible.

Analysts say don't look for these trends to change much unless the courts get involved, and that doesn't look very likely under the anti-regulatory Bush administration.

Empowering consumers

So where does this leave consumers?

Not fully in control, but not without options either.

Just about anyone using a PC is going to have to work off of a Windows operating system. Windows is a monopoly on the desktop, and will be for the foreseeable future. Get used to it.

Consumers can, however, empower themselves by mastering the basics of Windows so they can customize the system and run the applications they choose.

Consumers also have a choice when it comes to selecting ISPs. If you don't mind spending a few extra dollars a month for an ISP that does all the heavy lifting and decision-making for you, then you'll win by going with AOL or MSN. But there are plenty of alternatives.

A recent Consumer Reports study gave high marks to EarthLink, Prodigy and AT&T WorldNet.

Also, don't forget to check with your local ISPs; you'd be surprised what's right in your own back yard.

Advertiser staff writer Vicki Viotti contributed to this report.