Online Services Expect Battle Compuserve, America Online, Prodigy Gear Up To Defend Turf As Microsoft Stakes Its Claim

When Microsoft Corp. announced last fall that it planned to launch a computer online service, fear swept the industry. The giant’s astute and aggressive moves in the market for operating-system software - the guts of personal computers - had yielded it a near monopoly.

Could it, or would it be allowed to, do the same in the online world?

Put another way: Would billionaire Chairman Bill Gates become the middleman in what many project will one day be a multibillion-dollar circuit of retailing, entertainment and financial services?

America Online, CompuServe and Prodigy, the troika that now dominate commercial online services, have tried to beat Microsoft to the punch. They slashed prices. They overhauled their systems. They paid for the right to stuff free sign-up software in everything from magazines to new computers to electronic games.

They even complained to the U.S. Department of Justice, which took the unusual step of starting an antitrust investigation of Microsoft’s online service, which doesn’t yet have a single subscriber.

Microsoft responded Monday by asking a federal judge to block some of the requests by Justice Department investigators.

Why all the fuss? Well, it boils down to one button.

Boldly stating that it is doing nothing anti-competitive, Microsoft inserted the sign-up software for its new service - called the Microsoft Network, or MSN into the eagerly awaited rebuild of its Windows operating system, which goes on sale Aug. 24. With one click of a computer mouse button, users of Windows 95 will be whisked to the online registration point for MSN.

That bundling of sign-up software within Windows 95 is what infuriates the other online services. Online industry analyst Allen Weiner of Dataquest in San Jose, Calif., estimates the other services are spending $40 to $50 on marketing to distribute their sign-up software to each new customer. Microsoft won’t have to spend a dime. Indeed, computer manufacturers will pay Microsoft for the right to preinstall Windows 95, and thus MSN, on new models.

More than 80 percent of today’s PCs run on Windows. Although Microsoft won’t comment on its projections, people working with the company say they’ve been told that Microsoft expects as many as 30 million people to be using MSN in a few years. That’s more than triple those now signed up with all the commercial services combined.

Cooler heads in the online world say they aren’t worried about Microsoft domination. They point to the surging popularity of the Internet, a vast, decentralized, global network of computers. A cottage industry sprang from nowhere in the past year to provide access to the Net, and especially its World Wide Web component, which incorporates graphics, text, sound and video images.

“Let’s not overstate what MSN is going to do,” says Weiner of Dataquest. “There’s no way it’ll outgrow the Internet.”

Others aren’t so sure. It’s becoming increasingly clear that Microsoft’s online strategy won’t stop with building a premiere network. It is also attempting to create a “shell” that will encompass the whole of the Internet and funnel those resources into MSN.

That’s not to say Microsoft programmers have some code that will surreptitiously surround and suck out the content of the Internet; rather, Microsoft is designing tools that will allow seamless integration of Internet material into MSN. It has also hired hundreds of independent contractors as “forum managers,” whose job it is to build sites on various topics, but also to be savvy to what is available on their topic in the online world. They can then provide MSN links to the best sites and serve as expert guides to the sometimes unruly Internet.

“I don’t think I would have described six months ago that one of the primary goals of MSN is to be one of the best ways to access the Internet, but I would now,” says Bill Miller, MSN’s marketing director.

That means Microsoft won’t only be competing with the big three commercial services, which are also scrambling to provide seamless access to the Internet. Microsoft will take on the popular Web browser developed by Netscape. And it will also challenge companies big and small that provide access to the Internet.

Microsoft’s brash plans make some wary. “Microsoft is maneuvering to achieve an excessive degree of account control,” warns Curt Monash, president of Monash Information Services, which publishes a software newsletter.

Any day now, Microsoft will ship the final code for Windows 95 to disk makers. If the Department of Justice waits too long to try to block MSN, it will be tough to stop distribution of millions of disks, not to mention the trauma it would cause to the computer industry.

“We look at this as an antitrust regulator’s dream,” says Greg Shaw, a Microsoft spokesman. “MSN meets all the standards for increasing competition. … We’re increasing the number of choices that customers have.”