ON COUNTING MICROSOFT OUT OF GOOGLE/TIME WARNER AOL DEAL

WAIT UNTIL THE FAT LADY SINGS

There's a flurry of posts on memeorandum around the Time Warner deal with Google on AOL, that essentially talk about how Google has "beaten" Microsoft in the fight for AOL, I guess mine included.

This one titled "Hello facilities? Steve Ballmer needs a new office chair.  Yes, again" by "Good Morning, Silicon Valley", is a case in point.

These "victory lap" posts just remind me that it's never safe to count Microsoft out until they're out.

As I recounted in a post a few days ago, Microsoft does have a history of pulling victory in these kinds of deals from the seeming jaws of defeat:

"Remember when AOL cut a deal with Netscape back in March, 1996 to use it's browser technology instead of Microsoft's?  This was when Netscape was the king of the browser hill. Then literally over night, AOL cut a deal with Microsoft to exclusively use Internet Explorer instead of Netscape, and essentially began what was a dramatic erosion of Netscape's browser market share vs. Microsoft over the next couple of years"

For those interested in the history, here's an excerpt from the New York Times story:

"How a Giant Software Maker Played Hardball", New York Times, October 1998:

"For both software companies, a deal with America Online, which had five million subscribers at the time, could mean a big surge in browser use and market share.

Netscape seemed the natural partner for America Online, since both companies were Microsoft rivals. On March 11, America Online did announce that it would buy Netscape technology, but it was a standard licensing deal based on a payment-for-use formula. The next day, America Online announced a more significant deal with Microsoft making its browser the default technology -- the browser America Online subscribers would use unless they specifically asked for Netscape's Navigator.

To win the deal, Microsoft offered to give America Online a start-up icon on the Windows desktop -- precisely the kind of equal treatment on the main Windows screen that Case had asked the Justice Department to require of Microsoft. "After we agreed to its Internet Explorer browser, Microsoft allowed us to be bundled on the Windows desktop," Case said. "It was an example of Microsoft's pragmatic side."

The Google/Time Warner deal is not done until the Time Warner board votes on it this coming Wednesday.  There's still an opportunity for a twist in this drama.

Comments

[Jason Jones]

Michael - The fat lady just sang. The $20b valuation is not far from street consensus for AOL's value, so why did MSFT back down? What are they up to? The press release doesn't specify whether the pact precludes additional partnerships/mergers, which is the essense of Icahn's objection and your post. The MSFT/YHOO vs. GOOG/AOL vs. Skype instant messaging/voip battles just became more interesting. Even though the board meeting has past, the drama will most certainly continue - my question is what is MSFT's response? Jason