Although the software giant is already entrenched in the Net connection business with its MSN Internet service, it is still a distant second to AOL. The largest online service boasts nearly 18 million subscribers who pay $21.95 per month.
"We are aggressively thinking about how to get people to use our products and services and offering a low-cost or no-cost service is an option," said Deanne Sanford, lead product manager at Microsoft Network. MSN is the No. 2 Internet access provider with about 1.8 million subscribers, according to research firm Jupiter Communications.
At stake in the ongoing fight between AOL and Microsoft--which also are mired in a related battle over popular instant messaging technology--is the future of how people will use computers and the Net. As the mass market flock online, both are trying to control what is emerging as the Holy Grail--the interface users see when they turn on their computers and surf the Web.
Microsoft has long dominated that interface because of the prominence of its Windows operating system. But Windows and other systems are increasingly being marginalized as the browser and other Internet technologies gain importance. Even applications that traditionally ran on the operating system are moving onto the Web.
"Microsoft is motivated by reasons other than world domination--namely, a major threat to its core operating system franchise," Merrill Lynch analyst Henry Blodget wrote in a letter to clients today. "Microsoft has hinted at a willingness to lose money on the access business in order to gain market share, and more importantly, sell operating systems."
Last month, Microsoft joined the free PC fray with plans to give a free computer to people who sign up for three years of its MSN Internet access service. AOL joined that game earlier, offering a $400 rebate on low-cost computers in exchange for a long-term commitment to its CompuServe service.
Despite Microsoft's moves, an AOL representative said the online giant is undaunted. "It is a mistake to underestimate the power of the AOL brand and the power of the service we have built," AOL spokeswoman Ann Brackbill said.
She said that AOL has been ambushed on several fronts by companies offering low cost access or free PC for Internet access services, but is still pulling away from competitors. "We're still firing on all cylinders after actually raising our prices last year to $21.95," Brackbill said.
AOL, which last year acquired Microsoft rival Netscape Communications, said it is willing to do battle in the access space. AOL believes that Microsoft can't touch its strong branding power across the United States.
"Microsoft's brand translates to a software company and an operating system company," Brackbill said. "We have a brand that is unmatched in the online space."
AOL said it already has a strong presence in the lower cost arena with its CompuServe unit which give 20 hours a month for $9.95. The service is a strong magnet for people interested in "value access," extending AOL recognition, the company said.
"A low-cost alternative would certainly attract a number of new users and give MSN a greater growth trajectory," said Zia Daniell Wigder, an access analyst at Jupiter. "But MSN will have a long way to go."