In browser fight, AOL is down but not out

Neither assessment is exactly right.

America Online and Microsoft's public statements on the browser war appear to have more to do with legal and market posturing than the reality of the competitive landscape. Microsoft's courtroom arguments that competition is alive and well in the desktop PC browser market are essential to its antitrust defense. And AOL's stated disinterest in the browser it inherited through its acquisition of Netscape Communications reflects its disinclination to be associated with the crushing loss Netscape suffered at Microsoft's hands.

That concern about public perception is rooted in some bottom-line realities. Wall Street tends to punish any company seen to be on the losing side of a battle with Microsoft. And since AOL, like many Internet companies, depends on its gold-plated stock to carry out acquisitions, any saber-rattling in the browser war could cripple AOL when it needs all its resources to prevail against such a formidable enemy.

In this light, AOL's strategy appears to be to "play dead" while it quietly hammers out a battle plan for the next phase of the war. AOL's public statements have been to the contrary; but sources say keeping the Communicator browser a viable alternative to Microsoft's Internet Explorer is indeed a priority for AOL.

While AOL regroups, Microsoft continues to consolidate its gains in market share. According to a recent study by research firm StatMarket.com and tracking software company WebSideStory, IE accounts for more than 75 percent of browser usage, with Netscape's browser picking up most of the remaining quarter. Microsoft's WebTV accounted for 1 percent, as did other browsers.

StatMarket looked at the browsers used by 31 million surfers who visited more than 114,000 sites. Netscape questioned the accuracy of the survey, pointing out that it did not take into account the browser choices of visitors to the top 100 sites, which include Netscape's Netcenter portal.

And browsers on desktop computers represent only one front where AOL will have to face off against Microsoft. Instant messaging, where AOL maintains a huge lead in market share, is the latest high-profile example. Many say browsers for handheld computers and other alternative Internet access devices will be another hotly contested area.

Microsoft will have fires of its own to put out, including the growing popularity of non-Windows operating systems such as Linux, and application software developers' increasing attraction to Java, Sun Microsystems' platform-independent programming language.

AOL keeping the enemy close
One way AOL has kept the appearance of being above the browser fray is by continuing to build its own browser around Microsoft's IE "renderer," or browsing engine. AOL's stated reason for keeping the IE engine is that switching to Communicator would endanger AOL's placement on Microsoft's Windows desktop screen, where AOL signs up a large chunk of its subscribers.

Moreover, by building around IE, AOL can straddle the browser fence. On one hand it competes with Microsoft by building for its 17 million users a browser interface with its own links, buttons, and start page. That maintains a significant alternative to IE on the content side.

But technology matters as well, since a company with an overwhelming lead in market share essentially controls the development of industry standards and can steer it toward its own advantage. As long as Communicator maintains enough users to remain a relevant voice in Web standards bodies, AOL can safely cede its user base to Microsoft's column.

This strategy seems to have worked in throwing industry and Wall Street observers off the scent of a renewed AOL push on the browser front. But sources say AOL eventually will abandon IE and switch over to the Communicator browsing engine, known as "Gecko."

More immediately, sources said AOL is working on a plan to be hatched this year that essentially would try to reenergize Communicator through its Netcenter audience. The idea is to duplicate the success of AOL's consumer online service--of which the Web browser is only one component of a varied client platform of software and content.

As an independent company, Netscape attempted much the same thing, integrating its Communicator browser and Netcenter content. AOL potentially would be able to improve on that model in a few ways. For one thing, AOL is envisioning a persistent client like its consumer online service, as opposed to a Web site from which users come and go. Also, the Netcenter online service could integrate the combined Netscape browser and portal with Sun Microsystems' business-oriented computing systems.

AOL also is counting on the value of Netscape's brand, one of the most widely known on the Net.

"We will continue--as always--to be laser focused on our customers and our hugely successful multibrand strategy," said AOL spokesperson Maggie Young, who declined comment on the Netcenter online service.

Another arrow in AOL's quiver is the open-source development project, shepherded by Netscape's Mozilla.org group, which distributes the underlying source code to Communicator for free-but-licensed use by companies and individuals. Netscape and AOL hope the open source browser will attract a following among companies that want to be able to get under the hood of their client software and embed it with their own applications.

But Mozilla has been plagued by problems, starting with a scuttled dual-development track that cost Netscape time it did not have to waste. Further problems included the defections of key players following the AOL acquisition, and what many have characterized as a sluggish response by independent programmers who Mozilla hoped would contribute to the code base.

"Mozilla was Netscape's too little-too late response to IE," said Ira Machevsky, analyst with Odeon Capital. "Not a heck of a lot ever came of that endeavor."

AOL countered that Mozilla has seen an upswing in both developer contributions and in the product's implementation by businesses.

"Mozilla has seen significant momentum this year," said a Mozilla spokesperson, who said developer contributions have doubled since January.

Thinking small
While the future may look grim for challengers to IE on the desktop, AOL and others are carefully eyeing emerging markets where Microsoft's Windows franchise does not hold sway. Among cell phones, personal digital assistants, television set-top boxes, and other networked devices, the operating system market is very much up for grabs--and the browser market is up for grabs along with it.

Microsoft is pushing its CE operating system for handhelds and set-top boxes, but it has failed to win widespread adoption in the marketplace, where it competes with the likes of Palm.

"The bottom line is that this is very much unlike the desktop marketplace," said Spyglass's Littleson. "It's a very heterogeneous market, with handhelds, TVs, phones, and there are very specific requirements in each of those environments. You can't take a single solution and put it into these products without doing a significant amount of work."

Spyglass is working with Microsoft on customizing CE for various implementations, according to Littleson. "Microsoft has a stated interest in doing Windows everywhere in which the Internet is a key," he said.

"Windows everywhere" bears a striking resemblance to the AOL rallying cry "AOL Anywhere," a campaign to make the AOL service available through a variety of different devices. Here AOL and Microsoft will have to negotiate a crowded and diverse field of device and software makers, as well as service providers.

"The dynamics of how those products are sold are very service-centric in nature," noted Littleson. "You buy service from ATT, not a Nokia phone. You don't buy a General Instrument box, you buy TCI cable service. With the market share spotlight taken off the browser, a real focus has moved back to content and services."

If the predicted proliferation of non-desktop browsing devices materializes, Microsoft could find a victory in the browser war short lived. Some consider the browser war not merely over, but rather made obsolete by new fighting.

"It's not browser wars, it's device operating system wars," said Tim Sloane of the Aberdeen Group. "It's CE vs. everybody else. The browser is a component of it, but who cares? It has become almost impossible to separate the OS from the device from the access software from service you get. It's one big muddle."