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Weekly Column

What's in a Name?: How Microsoft's Internet Messaging Strategy Threatens AOL and Microsoft

Status: [CLOSED]
By Robert X. Cringely

There is nothing new, it seems, in computer business tactics. This Week, Microsoft made a bold entry into the Internet messaging market, and in doing so dragged from the grave some interesting marketing tricks from the 1980s. Back then, the motto was, "Greed is good." I'm not sure that motto ought to still apply. In fact, what Microsoft is doing, while clever, is also dangerous.

Internet messaging began with Internet Relay Chat or some similar application that 16 readers will shortly tell me they invented in 1971. (How could I be such a fool?) IRC established channels that users could join to chat in text about whatever the channel said it was about. IRC was very popular for talking about Star Trek, but if what you wanted was plutonium or nooky, a more private channel was needed — a channel of two. Thus was born ICQ from Mirabilis and AOL Internet Messaging (AIM) from, of course, AOL.

AIM and ICQ were different in many ways from IRC. Not only is IRC private, but the AIM and ICQ client software were proprietary and worked only with others of the same type. The IRC specification was published, and anyone could write their own client software, while ICQ and AIM allowed only a single client version for each operating system. ICQ users couldn't send instant messages to AIM users, either. Eventually, AOL spent more than $180 million to buy Mirabilis, a company that not only wasn't profitable, it did not even have sales!

With both ICQ and AIM, AOL owned the instant messaging business, which meant they had tens of millions of registered users — users to whom AOL could sell access. Bill Gates says the way to make money is by setting de facto standards, and between them, ICQ and AIM were the de facto standards.

Then this week, Microsoft launched its MSN Messenger Service with the ability to not only send messages to other MSN users, but also to AIM users. The de facto standard still stood, but suddenly there was an issue of who owned it.

Microsoft is always a threat because they can throw client software in the next version of Windows, creating almost overnight millions and millions of new users. This means the new MSN Messenger Service is not in any way an underdog, so don't believe the whining from Redmond.

And don't believe, either, the whining from Virginia, where AOL feels betrayed, its $180+ million investment in ICQ made potentially worthless overnight. This is because what made ICQ worth all that money was its ability to deliver so many eyeballs to advertisers. But now that Microsoft can reach most of those same Eyeballs for free, did AOL end up buying anything at all in ICQ? Remember, these services are all free.

We've been here before, of course. Right now, AOL is fighting similar battles with instant messaging services from Prodigy and Yahoo. But the battles really go much further back than that, all the way to the 1980s. Back then, it was Microsoft fighting with Novell, and the issue then was client access to local area networks. Microsoft introduced in the mid-80's a not very good file server called MS Net to compete with Novell's Netware. Client software for MS Net was in early versions of DOS, Windows, and OS/2. This was in retaliation both for Novell's very existence and because Novell had itself reverse-engineered DOS as part of Netware. Only Novell's DOS was faster than Microsoft's. Despite the support of IBM, MS Net thankfully died, so Microsoft eventually threw into Windows, itself, a client for Netware. It was a s-l-o-w client, to make sure Netware looked worse than it really was, but nevertheless Microsoft shipped (and ships) a Netware client.

In this tussle from a decade ago, what was prized was the file server market. Clients could be given away with the goal of selling servers. Passwords were being gathered, sure, but they were held locally and never shared with software companies. But this new situation is quite different for more reasons than just who holds the passwords. In this case, what's valuable are the users themselves, and what has AOL all in a tizzy is MSN Messenger's ability to connect with AIM clients.

Linking to AIM clients requires going through a gateway between the two systems. Before Microsoft's gateway software can connect to AIM on behalf of a particular user, that user has to give MSN Messenger his or her AIM password. In order for MSN Messenger to keep track of whether any of your AIM buddies are up and running, the gateway has to keep a record of that AIM password. This is the bone of contention between the two systems. From AOL's viewpoint, Microsoft is stealing passwords and compromising the safety of AIM. That's true as far as it goes, but what Microsoft is really doing is marginalizing the entire value of AIM.

There is nothing illegal about what Microsoft is doing. There IS a privacy issue here, but beyond that, there isn't anything really wrong being done. What strikes me as dangerous, though, is the prospect that this whole thing could escalate into total war between AOL and Microsoft.

Here's what I mean. First remember that AOL is the one being attacked here, and that AOL CTO Marc Andreessen has both a good technical mind and a hot temper. If MSN Messenger ruins AOL's $180+ million investment in Mirabilis, why shouldn't AOL nuke Microsoft's $400 million investment in Hotmail?

MSN Messenger requires users to have a Hotmail account. AOL could easily create a service I'll call AOL AnyMail, which would be rather like the old Claris eMailer — a client for multiple e-mail systems. AOL AnyMail could be used to consolidate in one place all those free e-mail accounts we have all picked up over the last couple years. Through AOL AnyMail you could read your Hotmail, Yahoo Mail, Excite Mail, Whatever Mail, even your corporate e-mail. And though AOL AnyMail's ability to remember which mail came from which service, you could answer back through those services. It's a heck of an idea that only requires gathering user names and passwords for those services, which is exactly the thing Microsoft is saying is okay. Redmond can hardly complain.

If AOL is smart they'll do exactly what I suggest, rather than current tactic of trying to make technical changes to outsmart the MSN Messenger gateway. E-mail is more valuable than messaging and I like to watch bullies fight. And just as Claris eMailer was able to download AOL mail without an AOL client, I'm sure we'd shortly see HotMail present its own universal free e-mail client doing exactly the same thing in retaliation against AOL. By that time, we will have marginalized both messaging and e-mail as Internet businesses.

It could be a bloodbath, and probably will be.

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