In giving Apple Computer (AAPL) a hand up with the $150 million agreement announced at Macworld today, Microsoft (MSFT) may have managed to simultaneously give rival Netscape Communications (NSCP) a black eye.
The software giant may also have succeeded in attracting yet another antitrust investigation.
Apple's announcement that it would make Microsoft's Internet Explorer 4.0 the default browser on future versions of Apple operating systems is the latest in a string of setbacks for Netscape on the browser front.
"The agreement reinforces the fact that Microsoft is gaining on them and will continue to gain," said Richard Scocozza, equity analyst with Brown Brothers Harriman. "I wouldn't be too happy about this if I were Netscape."
Microsoft's investment in Apple comes on the heels of last week's defections by Intuit and IBM subsidiary Lotus to IE with their respective software suites. Other Netscape setbacks this year include the move to Explorer by Chevron, which until March had been one of Netscape's biggest corporate customers with 25,000 desktops.
Although IE will become the default browser for Mac OSes for the life of the five-year pact, Apple will continue to bundle Navigator with the operating system and with other products under a preexisting distribution agreement between the two companies.
Netscape spokeswoman Jennifer O'Mahony dismissed the Apple news as inconsequential to her company's browser fortunes. "We're not seeing any significant trend here, despite Microsoft's best efforts in marketing agreements and PR. We're not seeing that translate into market gain."
But research by International Data Corporation shows that Microsoft had captured 30 percent of the installed browser base by the end of 1996, compared to 55 percent for Netscape and 16 percent for other vendors.
"I think Microsoft can drive their market share to 60 percent over the next 12 months and relegate Netscape to the No. 2 spot," said Scocozza.
O'Mahony also downplayed the importance of the agreement to Netscape's Mac following. "Microsoft does not have a good track record with Mac users," she noted, citing late software shipments and products with fewer features. She also claimed that Netscape enjoyed a 90 percent share of the Apple-heavy education market. "We have been overwhelming winners in that playing field."
Scocozza agreed that the Apple announcement in itself was not going to topple Netscape from its No. 1 position. "From a purely economic standpoint, Netscape is not going to take any major hit. But in terms of visibility in the marketplace and establishing momentum, it may be that Netscape is losing. The psychological ramifications are much more important than the economic ones."
The legal ramifications might prove to be most important of all. Representatives at both the Justice Department and the Federal Trade Commission said that one of the two agencies would likely investigate whether the default bundling agreement constitutes a potential restraint of trade.
"It's likely that one or two of the agencies would look into it," said Gina Talamona, a spokeswoman at Justice. A spokeswoman for the FTC concurred, stating that one of the two agencies would probably investigate.
In a light moment at a press conference following his Macworld keynote, Apple director Steve Jobs summed up the situation as follows: "Apple plus Microsoft equals 100 percent of the desktop market. Whatever Apple and Microsoft decide to do, it's a standard."
Microsoft, on the other hand, attempted to play down the market impact that could arise from this situation. Desktops represent only one distribution channel for browsers, according to company spokesman Mark Murray, as browser software can be downloaded from the Web or ISPs. Murray also said that agreements with other computer OEMs do not bar them from bundling Navigator with their Windows 98-equipped computers and maintained that users could switch the default settings on their browsers.
President Clinton, who responded to questions from reporters at a press conference today, said any opinion would have to be predicated on what, if any, conclusions drawn by the Justice Department. "I have to wait to hear from [Justice] about whether there are any antitrust implications to this," he said.
The concern arises from the slippery, ubiquitous nature of Internet Explorer 4.0. Microsoft is feverishly recruiting computer OEMs to integrate IE 4.0 into the interfaces in upcoming computer models for fall, according to Yusuf Mehdi, director of product marketing for Microsoft's Internet division. The browser will also get integrated as part of Windows 98, the next release of Windows due this spring.
"[OEMs] can build links to their support desk. They can have a channel for their business," he said.
Although this does not prevent equipment manufacturers from bundling Navigator, observers have noted that the new browser will be incorporated into the interface by nearly all of the major computer makers. In any event, because it is part of the OS, IE 4.0 can't be disabled, Mehdi added.