Gartner: AOL, Microsoft wars have just begun

Despite reports that contract negotiations between Microsoft Corp. and AOL Time Warner Inc. are now inching along, consumers should prepare themselves for a major war between the two Internet heavyweights as they wrestle to control new platforms such as media players and instant messaging (IM) services, according to research company Gartner Inc.

Haggling between the companies over the inclusion of AOL’s installation icon in Microsoft’s upcoming Windows XP operating system is just the start of friction between the unlikely bedfellows, said Gartner Internet strategies analyst David Smith in a recent report, as their battle to dominate new technologies may lead them into more complex deals, touch-and-go negotiations and even courtrooms.

The two companies have been in heated talks over the extension of a deal which gives AOL placement on the Windows operating system desktop in exchange for AOL’s exclusive use of Microsoft’s Internet Explorer (IE) browser over AOL’s own Netscape browser. Although these should have been relatively simple negotiations, said Smith, the talks almost came to a screeching halt June 4 as the companies reportedly sparred over Microsoft’s plans to integrate its new Windows Messenger service into Windows XP, to the exclusion of AOL’s dominant AOL Instant Messenger (AIM).

The negotiations even took a swipe at innocent bystander RealNetworks Inc. when rumors that Microsoft was giving AOL the hard sell to adopt its Windows Media Player in place of RealNetworks’ RealPlayer sent RealNetworks’ stock tumbling 20 per cent May 29.

But all this excitement is nothing compared to the upcoming battles between the Internet titans, Gartner analysts said. The October release of Windows XP, coupled with Microsoft’s HailStorm initiative, will place the software company in the pay-as-you-go Internet territory that AOL clearly wants to tread, according to Gartner. This will leave the companies fighting for future customers as they move to stake claim to dominant positions in the nascent IM and media player markets.

Microsoft’s HailStorm services, which are due to be included in Windows XP, establish, according to Microsoft, a secure online identity for consumers which supports for-pay Web services, according to Gartner. Analysts have predicted that HailStorm will reduce demand for competing products from companies like AOL, RealNetworks and Yahoo Inc.

On the IM front, Microsoft’s new Messenger reaches beyond traditional text-based messaging to incorporate voice, video and user-shared applications.

Gartner analysts believe that Microsoft’s new and improved IM service is aimed at forcing AOL’s hand so that the ISP opens up its IM service to interoperability, which so far it has been reluctant to do. This would benefit users, the analysts said, but would take a bite out of AOL’s marketshare.

Responding to speculation over the companies’ sticky relationship, an AOL spokesman said Tuesday that: “AOL and Microsoft are both partners and competitors and nothing in the talks (will) change that.”

No one from Microsoft was available for comment Tuesday morning.

However negotiations between the Internet aficionados shake out, consumers can hope that the fierce competition will at least spur more options and cheaper services in the end.

Gartner Inc., in Stamford, Conn., can be reached at Microsoft, in Redmond, Wash., can be reached at AOL Time Warner, in New York, can be contacted at