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Gates: DOJ "dismayed" by AOL-Netscape deal

In an internal email, Gates asserts Netscape's reaching a market valuation of $4 billion proves the software industry is open to competition.

    Microsoft chief executive Bill Gates apparently surmised that the Justice Department (DOJ) would be "very dismayed" by news of a merger agreement between America Online and Netscape Communications.

    In an email to company executives time-stamped this morning and released to the press this afternoon, Gates asserted Netscape's reaching a market valuation of $4 billion in four years proves the software industry is open to competition. He also said the deal validates Microsoft's strategy of giving away its Internet Explorer browser and simultaneously bundling IE into its Windows operating system.

    "No one has 'foreclosed' Microsoft's day in court Netscape from distributing its software," Gates wrote, referring to charges that IE's price and bundling illegally undermine Netscape Navigator's attempt to maintain its leading market share. "Yet the claim that Netscape was 'foreclosed' from distributing its software is not just the center of the DOJ case--it is the DOJ case," Gates said.

    The Redmond, Washington, giant is in the midst of an antitrust suit in which the federal government and 20 states contend the company used its predominant position in operating system software to try to corner the market for web browsers. Microsoft denies the allegations.

    Gates pointed out that AOL's Net access software has always been free, and predicted that AOL will distribute Navigator for free "sooner or later to all its online service customers." AOL and Microsoft currently have an agreement for the world's leading Internet service provider to distribute IE.

    The competitive price of browsers is "zero," Gates also wrote. "Browsers are like network TV. The traffic alone makes it a great business to make a popular browser even without charging users" because they generate advertising revenue.

    The email echoes comments made by Microsoft lawyers when news of the deal broke last week. But the government rejected those assertions, calling the AOL-Netscape merger evidence of alleged anticompetitive acts and even an "exit strategy."