Microsoft, AOL Clash Again

N E W   Y O R K, June 18 -- At the moment, Microsoft and America Online can't seem to live with each other. But in the long run, can the two technology giants live without each other?

For now, they will have to. Over the weekend, the two companies stopped negotiations aimed at including AOL's software in Microsoft's new XP operating system — and gave different accounts about why the negotiations broke down.

AOL said Microsoft was attempting to undercut Internet streaming media leader RealNetworks, an AOL partner and Microsoft competitor, by trying to use its own video and audio players for certain applications.

But Microsoft cited a variety of snags, including differences over video and audio technology as well as instant messaging systems — and AOL's unwillingness to agree not to bring legal claims against Microsoft.

Bundling Again?

The latter is a key issue, since Microsoft's insistence on including only its own products in the XP system seems to echo the notorious "bundling" strategy that led to the government's antitrust case against the company.

It was Microsoft's insistence on including its own Internet Explorer browser in the Windows 95 operating system that led to a suit by browser rival Netscape — since purchased by AOL — and a federal antitrust decision to split up Microsoft a year ago. A decision on Microsoft's appeal of the case is expected imminently.

But Microsoft and AOL have had distribution deals for years that have resulted in AOL's latest software being included in Microsoft's Windows package — the world's dominant operating system. Those deals have helped AOL become far and away the leading Internet access provider in the United States, with about 24 million customers, and 30 million worldwide.

And some observers think the prospects for future lawsuits, alleging unfair practices on Microsoft's part, are unlikely.

"Microsoft really does not have an obligation to put anybody else's software in their operating system," says Nicholas Economides, a professor at New York University's school of business, who has written extensively about antitrust cases.