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Microsoft targets AOL
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August 5, 1999: 4:58 a.m. ET
Software giant plans to offer cheap, maybe free, Internet access
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LONDON (CNNfn) - Microsoft is once again taking aim at the core business of America Online, but this time it's really serious. The software giant plans to offer cut-price, possibly free, Internet access, according to a press report Thursday.
AOL (AOL) has more than 17 million customers in the United States paying $21.95 a month for access to the Web, but Microsoft has plans to slash the cost of signing up to the Net, The Wall Street Journal reported Thursday.
"AOL might think about it [providing Internet access] as a profit center. That's not how we think about it," Microsoft (MSFT) executive Brad Chase told the Journal.
Microsoft currently has some 2 million access subscribers to its Microsoft Network, but they contribute only a fraction of the Seattle-based giant's revenues. AOL receives two thirds of its revenue from online subscriptions, the newspaper reported.
Microsoft is intensifying the pressure in order to protect its core software business from potential competition from AOL. Documents revealed in the Microsoft antitrust trial indicated that AOL hopes its dominance as a service provider will allow it to become an alternative software "platform", according to the Journal.
Microsoft has tested Internet access for just $9.95 a month and plans to offer free access to customers who commit to a certain level of spending with the group's e-commerce partners, The Journal reported.
Free Internet access has become a hot topic in Europe, particularly the United Kingdom. Freeserve, a unit of electronics retailer Dixons (DXNS), has rapidly became the U.K.'s largest access provider and recently completed a successful IPO. Scores of copycat services have been launched by organizations from soccer clubs to supermarkets and banks. AOL Europe, a joint venture with Germany's Bertelsmann group, was recently forced to bite the bullet and offer its own free U.K. access service. Subscribers in the U.K. must still pay local telephone charges while they surf the Web.
Sources told the Journal that Microsoft is also eyeing plans to partner with hardware companies such as Compaq Computer (CPQ) and Dell Computer (DELL), which have launched their own access services, or to purchase or partner with access providers such as MindSpring Enterprises.
AOL President and Chief Operating Officer Bob Pittman dismissed the threat of cheaper access, telling the newspaper, "people don't buy on price, they buy on value."
Battles between Microsoft and AOL aren't new, the latest being a public dispute over access to AOL's Instant Messenger service.
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