More on Microsoft: A Window on the AOL/Microsoft Rivalry

In 1996, America Online carpet-bombed the nation with 3.5-inch floppy disks in a battle to build its brand and grab more of the online services market. At the same time, Microsoft Corp. waged "the Browser Wars," the media’s moniker for the struggle between established Netscape Navigator and upstart Internet Explorer.

In those days, the two companies were vicious rivals. AOL then helped sow the seeds that blossomed into the government antitrust suit against Microsoft. AOL Chairman Steve Case hammered Microsoft, demanding equal access to the consumer’s computer desktop, referring to it as the "dial tone" of the online services industry. Microsoft Chairman Bill Gates volleyed back, quoted as saying he would either buy AOL or bury it.

From this discord came an unlikely pairing: A partnership between Case and Gates, between AOL and Microsoft. The deal was simple: AOL got access to the Windows 95 desktop – and more customers – because Microsoft bundled AOL software with its operating system. This element of the deal came in spite of Microsoft’s efforts to establish its own proprietary online service, the Microsoft Network, and build it into the Windows desktop.

"There was a high level of acrimony then as well as now," said Dwight Davis, a vice president at Boston-based research firm Summit Strategies, but "both companies were being pragmatic then."

If pragmatism carried the day in 1996, something else entirely was at work on June 16, when the two companies ended talks to renew the five-year deal. Their irreconcilable differences ranged from litigation immunity to audio software disputes. What was the difference? Why did two corporate enemies decide they needed each other 1996, but not in 2001? And what lessons are there in the discussion of then and now?

For some, the lessons are simply this: All’s fair in love and war – and business. Customer care is paramount, and if that means partnering with a rival, so be it. Furthermore, company strategists must always remember the goals of the partnership, evaluate that partnership and be prepared to end the partnership when the goals are met.

The landscape for the two companies has changed considerably since 1996. Both have struck out in different strategic directions. Back then, Microsoft held deeper aspirations for content and media plays, investing heavily in such ventures as Carpoint, Expedia and, eventually, its cable partnership with NBC television, MSNBC. Instead, Microsoft has invested heavily in its .NET strategy – a proprietary software platform for web services based on the XML formatting language.

Microsoft has other issues to consider. Instant messaging software, for example, is a feature that can be incorporated into the Windows XP operating system – another reason for existing Windows customers to upgrade. But the value of that feature is diminished if MSN Messenger members can only chat within that network. Further, as Strom suggested, working with a company like AOL could diminish Microsoft’s reputation for being anti-competitive – a benefit in the marketplace as well as legal and political circles.

For AOL’s part, losing out on this deal may give MSN a boost as the sole service available from the new Windows desktop. "Earlier, Microsoft had de-prioritized MSN. Now it’s coming along like gangbusters," Black said. The lingering question is whether AOL cares and whether the 1996 deal was sufficient to meet its goals.