Microsoft vs. AOL: Who Will Be Left Standing?

The ongoing cyber street fight between Microsoft and America Online over instant messaging is just the opening gamut of a battle between the two Internet titans that could end up shaking the foundations of both companies.

The dispute flared up a few weeks ago, when AOL began to electronically block messages from MSN members trying to contact AOL subscribers using Microsoft’s newly launched instant messenger. This angered Microsoft officials, who piously argued that instant messages, like e-mail, should flow freely between different online services.

Microsoft found at least one major ally in Yahoo! — which also wants to make sure members of its online communities can instantly keep in touch with AOL’s legion of subscribers.

Destroying Each Other’s Cores

Last week, Microsoft escalated the scrimmage between the two companies — possibly declaring all out war — when some of its top executives began talking to the press about the possibility of Microsoft soon offering Internet access at a low-price, or even for free. Currently, about two-thirds of AOL’s $5 billion (US$) revenue comes from the $21.95-a-month it charges its more than 17 million customers for its services.

This isn’t the first time Microsoft has tried to put AOL out of business. In 1995 when Microsoft Network was launched, it tried to score a direct hit against AOL by bundling its service into its Windows 95 operating system. AOL screamed foul, but lucked out when Microsoft’s product turned out to be weak.

Best Offense Is A Good Defense

At the same time — quietly and not so quietly — AOL has been dropping hints that with the help of newly acquired Netscape it might be working on a few surprises of it own.

Because of this secret weapon, Microsoft’s talk of buying up or partnering with a number of large Internet service providers, including EarthLink Network Inc. and Mindspring Enterprises Inc., could all be for naught. Some believe AOL has already developed an online software platform that will replace Windows in a twinkling of an eye.

Suppose, they say, at the same time Microsoft decides to give away free Internet access, AOL unveils it’s free operating system that is updated monthly at no charge — except its $21.95 monthly subscription fee? This could explain Steve Case’s recent comment that Windows is the past and that AOL is the next Microsoft.

So, what at first look appears to be an overly aggressive Microsoft trying to take away AOL’s candy, in reality, may simply be Bill Gates and Company fighting for their corporation’s life.

Battle Could Get Bloody

Nonetheless, it would a big mistake to think that Microsoft can’t or won’t score some direct hits on AOL — or even take it out. After all, its $500 million nest egg could fund an Internet war of attrition lasting for a decade — if need be.

Who’s The Winner?

As both sides approach the battlefield, it’s much too soon to predict a winner. There’s a strong possibility the companies will duke it out to the point where they’re both in shambles. If this becomes the end game, then the real winner could be an IBM or an Intel that comes along after the war is over and decides to pick up the pieces.

What do you think? Let’s talk about it.