AOL-Microsoft Settlement: The Future

AOL and Microsoft have announced an end to their feud. It seems to me that there is a lot in there that needs to be dis­sected and pon­dered about. It will impact the devel­op­ment of the Inter­net for years to come.

IM

: One of the con­di­tions for the AOL/Time Warner merger was that AOL open its instant mes­sag­ing plat­form to other par­ties. By agree­ing to inter­op­er­abil­ity between the AOL IM client and MSN mes­sen­ger one, AOL will now be able to point to its “open­ness” while main­tain­ing a rel­a­tively tight con­trol over the progress of that tool. I am sure the two com­pa­nies are inter­ested in work­ing together and some­how doubt that they will be very inter­ested in open­ing the world to other competitors.

At the cur­rent time, IM has taken the con­sumer world by storm and is start­ing to make head­way in the enter­prise. Because of its pres­ence con­cept (you can see whether the peo­ple on your buddy list are online right now or not), it will even­tu­ally become a crit­i­cal tool in the enter­prise, mov­ing some data traf­fic from the phone and email to this new plat­form. Already today, enter­prises that have imple­mented IM solu­tions are see­ing large amounts of traf­fic on those net­works as employ­ees send the shorter requests via this tool. Enhance­ments in the col­lab­o­ra­tion aspect of those tools make them per­fect to be used for set­ting up online dis­cus­sions and doc­u­ment shar­ing. I sus­pect that, because AOL is for­bid­den from adding new fea­tures to its IM plat­form until it has shown to be more open, we will see the com­pany point to Microsoft and get a free pass in terms of adding new fea­tures. This will be good for AOL because it will allow to enhance its enter­prise offer­ings. It will also be good for Microsoft, as it will prob­a­bly be able to increase its foot­print into that space.

Long term, I would expect most of the devel­op­ment of this even­tu­ally end­ing on Microsoft’s lap, with AOL doing an asset trans­fer of its soft­ware divi­sion to Microsoft.

Dig­i­tal Media

: Part of the deal includes a non-exclusive agree­ment for AOL to use the Microsoft Win­dows Media 9 soft­ware suite. Once again, this is good for both com­pa­nies and bad for every sin­gle one of their competitors.

AOL will ben­e­fit from the lower cost of soft­ware acqui­si­tion mov­ing for­ward. As it looks to move more into fee-based dig­i­tal media ser­vices (with words that it could offer TV shows, music, movies, etc… from its vast assets col­lec­tion) the com­pany will make more sub­stan­tial invest­ments into those kinds of tech­nolo­gies. Since this is a part­ner­ship, I sus­pect the prod­ucts will be heav­ily discounted.

Microsoft wins in that, if AOL, with its fairly large cus­tomer base, start offer­ing more ser­vices run­ning on Win­dows Media 9, it will make it eas­ier for Microsoft to go after other media player and present its installed player foot­print as a com­pet­i­tive advan­tage. The story will go as fol­lows: use Win­dows Media 9 server and you will not have to worry about your cus­tomers hav­ing to down­load extra soft­ware. Of course, Win­dows Media servers will con­tinue to run on the Win­dows oper­at­ing sys­tem, which should increase sales in that mar­ket and pro­tect Microsoft to some extent from the Linux onslaught.

Another impor­tant part of this por­tion of the agree­ment is that it will allow the two com­pa­nies to set stan­dards for dig­i­tal rights man­age­ment. DRM is basi­cally cov­er­ing how to ensure that copy­rights and pur­chase rights are assessed on dig­i­tal media. What this means is that a DRM sys­tem basi­cally encodes a piece of dig­i­tal media (whether it is a movie, music track or piece of soft­ware) to include infor­ma­tion about what you pur­chased and how you are allowed to use it. For exam­ple, the Apple Music store cur­rently sells music tracks that you are allowed to use on only three com­put­ers. Because AOL is one of the largest pro­ducer in the world of such media, and Microsoft regards this soft­ware area as a very lucra­tive mar­ket in the future, the part­ner­ship will give both play­ers a sub­stan­tial amount of power in shap­ing the future of dig­i­tal media.

AOL wins in that it gets some­one to do the heavy lift­ing on the soft­ware side to tighten up con­trol of dig­i­tal media. Microsoft wins in that it gets a bet­ter under­stand­ing of what large media com­pa­nies will want and builds a solu­tion it can then resell to other com­pa­nies. Once again, this is also a good argu­ment for fur­ther­ing the num­ber of imple­men­ta­tions of win­dows servers as I sus­pect that Microsoft will strongly rec­om­mend media com­pa­nies use their plat­form to han­dle this.

Browsers

: By now, the browser wars are, at best, a dis­tant mem­ory. While a few hold­outs do not use Inter­net Explorer and con­sid­er­able devel­op­ment and inno­va­tion is still hap­pen­ing by mak­ers of non-IE browsers, the mar­ket for alter­na­tive browsers is rel­a­tively small. At last count, IE was con­trol­ling over 85% of the global mar­ket. The only bright spot in that mar­ket was a browser named Mozilla, an open source project for which Netscape, a sub­sidiary of AOL, was the largest con­trib­u­tor. Because of the bad blood between Amer­ica Online and Microsoft, there were a lot of rumors about AOL imple­ment­ing Mozilla as the core browser in its flag­ship client (it has already done so on the Mac­in­tosh com­puter). With the announce­ment that AOL will get a seven year roy­al­ties free license for Inter­net Explorer, it seems pretty appar­ent that sup­port for Mozilla from the AOL camp will prob­a­bly wane. The long term out­look for the Netscape unit does not look very bright, even if the AOL chair­man said that they were not clos­ing the unit for now.

Pol­i­tics

: This announce­ment also shows some inter­est­ing devel­op­ment in inter­nal pol­i­tics within the two companies.

In the mid-90s, Microsoft was start­ing to move more into the gen­eral media space. With this agree­ment, Microsoft sig­nals the com­ple­tion of a shift back to its soft­ware roots. It is prob­a­bly a real­iza­tion that there is still a lot of growth in that arena and that it doesn’t make sense from their stand­point to try to get into the media world by acquir­ing and/or build­ing media assets.

On the AOL/Time-Warner front, this announce­ment shows a clear power shift in who con­trols the com­pany. The power is now in Time-Warner hands, with any con­cept of com­pet­ing with Microsoft on the soft­ware end now a dis­tant mem­ory. Time-Warner under­stands media and fig­ures that it is bet­ter to rely on an out­side party to deal with the soft­ware side of the busi­ness than to try to develop things themselves.

I am sure I’m miss­ing a few things but I expect this story to con­tinue unfold­ing and hav­ing reper­cus­sions across the whole Inter­net space.