The price is right: free

That's how it began to cut into Netscape's lead, by giving away its Internet Explorer browser. The same thing is happening on the consumer side in the streaming market, but Microsoft is going one important step further: Its new Windows 2000 business operating system comes packaged with the corporate server software that works with its consumer Media Player, in effect giving it away for free.

"There's a lot of speculation over Microsoft pulling a Netscape by giving away its software for free," said Dave Uelmer, chief executive of Earjam.com, which produces a player that supports Windows Media and MP3 downloads. "Microsoft can put a company out of business by rolling over in its sleep."

Yet giving away software alone won't win the streaming market. Unlike the browser contest, where dominance of the desktop PC operating system gave Microsoft a relatively straight path to outflank Netscape, streaming bears other complications involving multiple industries.

Microsoft needs to compete on three fronts at once: the consumer market, dominated by RealPlayer; the server market, dominated by RealServer; and the content market--an open arena where several companies are vying to win support from music labels, online news sites, Web radio stations and others to offer products in their respective formats.

After having focused on the consumer market, Microsoft seems to have finally understood that it needs more. So it is bundling servers with Windows 2000 in an extension of its control of the desktop computer and is using its considerable influence to persuade more content companies to support its Windows Media format. Those tactics will become increasingly important as it seeks to displace MP3 as the dominant music download technology.

"Anyone could go to RealNetworks and buy a server license and pay about $40 per stream. But if you're serving up a lot of streams, they have different terms. One would think those should be cheaper by the dozen--if I'm buying tens of thousands of streams, I should have more favorable terms," said Steu Chapin, vice president of marketing at Web broadcaster Activate.net, in reference to hosting charges on Real Broadcast Network. "And is there a point where they become so onerous that people like me scratch their head and say, 'What do they want me to do here, do they want me in the business or not?'"

Such comments are reminiscent of frustrations expressed about two of Microsoft's earlier opponents, Netscape and Apple Computer, whose fates were linked to a perceived arrogance stemming from large market shares.

As it has done in other rivalries, Microsoft is trying to exploit RealNetworks' weaknesses by playing a bit of good cop, bad cop. It is quick, for example, to point out that RealNetworks competes with some of its partners in content and Web hosting services.

"Microsoft says to content providers, 'Gee, RealNetworks is competing with you and selling advertising, and we would never do that. We just want to sell you technology," an industry executive said. "Microsoft will give you credit if you're a content provider for free hosting."

That is another common theme in Microsoft's business tactics: sweetening deals that are difficult to resist. In vying for browser deals, Microsoft struck alliances with content providers, software developers and Internet service providers to favor Internet Explorer. In addition to providing free technology, Microsoft allotted premium Windows real estate for the icons of other companies, raising their profiles and driving more traffic.

"It occurred to me that I could get to use Microsoft for no cost and receive tremendous promotional value in exchange," said Alex Kanakaris, chief executive of Kanakaris Communications, which organizes and streams classic Hollywood movies. "They gave us free promotional banner ads on their WindowsMedia.com Web site. We get 1 million page views a month through that deal. Microsoft also helps pay our bandwidth bills."

The incentives can go even further then that. "When there are major streaming events that people are doing, Microsoft will go out there and underwrite it in exchange for using their technology," said another Web content executive who works with both companies. "Microsoft sees itself less as a content portal and more as an enabler."  

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