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On Consumer Trends in Computing

"Word on the street has Netscape in takeover talks with several industry powerhouses."

And one of the names being mentioned as a possible suitor is AOL... which actually might make good business sense.

The purpose of computing has always been "access to information." For there to be an actual computing "industry," three elements have to be present: a sufficient number of end-users with access to computing hardware; information which users want (often called "content" these days); and the access point--the software which allows users to connect to the content.

By the 1970s, when computing finally hit its stride, mainframe computers were the only game in town. Since IBM was by far the biggest supplier of the hardware on which information was stored, and since one normally used their operating systems to access that information, IBM profited most. In the second half of the decade, minicomputer companies such as DEC and HP made inroads into the business computing market by providing lower-cost hardware (which allowed more users to access content). But IBM offered its own minicomputer line, and retained its dominance. IBM was king because a majority of the user base accessed content primarily through IBM software.

In the 1980s, many more users gained access to isolated personal computers. Since it was convenient, that's where they stored their content. So the key access point was each computer's operating system. Whoever could supply the operating system that best allowed users to access local content would profit most. At this time, although Apple had some success with its Apple ][ and Macintosh computers, the 1980s belonged to Microsoft. Microsoft did more than IBM could; it allowed many more users to quickly access the information they really wanted. And Microsoft fared better than Apple because the hardware still mattered... and the "open" design of the PC meant that more peripherals were available at lower prices than could be found for the proprietary Macintosh. So although the number of Apple hardware/software users grew during the 1980s, the number of PC/Microsoft users grew much faster. And thus, in the 1980s, a majority of the user base accessed content primarily through Microsoft software. Microsoft was king.

The 1990s have been the Networked Decade. As more personal computers were connected to one another, content migrated off of the PC and onto high-speed, high-capacity file servers. In the first half of this decade, that meant Local Area Networks--LANs. Novell, the maker of the NetWare network operating system, held a commanding position at this time, seeming to rival Microsoft. Why? Because Novell owned the means by which users accessed content. As more information left the desktop, the importance of the PC operating system decreased, and the importance of the network operating system increased. Novell was in a position to be the Microsoft of the 1990s, but--for various reasons--it never capitalized on its opportunity.

By the mid-1990s that opportunity was gone, bypassed by the explosion of access links to the Internet. Once again content began to migrate, this time from file servers limited to business users to servers "out there" in the world which offered access to any and all users. The user base, which in its quest for content had flocked to online services such as CompuServe, GEnie, Prodigy and AOL, began to adopt the World Wide Web in huge numbers... and the company which controlled the access point this time was Netscape. By offering for free Marc Andreesen's version of the Mosaic browser, Netscape quickly amassed an astonishing 90 percent share of the potentially huge Web browser market. Netscape virtually owned the new access point.

But Microsoft, whatever one may think of its business practices, has never been run by lazy or unimaginative executives. Microsoft first tried to compete with Novell, and--while the LAN boom lasted--was beginning to win that battle. When the Web became the content source of choice, Microsoft reacted quickly, and in two directions. First, it recognized the value of content ownership; witness Bill Gates acquiring the rights to numerous electronic publishing houses, as well as the rights to electronically display the great historical works of art. Also, note Microsoft's creation of its own online service, MSN, which created a user base by offering content. Second, Microsoft very quickly scavenged the programming talent necessary to develop its own Web browser, which it began integrating into Windows 95 to (successfully, if perhaps not legally) take market share from Netscape. Thus Microsoft leverages its still-commanding position in the PC operating system market to gain more control over the new content access point.

Now come rumors that AOL might buy Netscape. This is interesting because it would link AOL's very large user base with the still-dominant content access technology: Netscape's Web browser. If any combination could provide a challenge to Microsoft's dominance of computing, as Microsoft in its day usurped IBM's crown, an AOL-Netscape merger might be it.

[Note: As of 1998/12/23 this has now happened--Netscape has agreed to be purchased by America On-Line. This creates another company with a large (and profitable) user base and a self-controlled means of accessing content. Strategically, however, Microsoft is still ahead, as it has now spent several years acquiring copyrights on various forms of the Web's most desirable content--the third element required for industry domination. It remains to be seen whether this will prove to be the controlling element, especially in light of the U.S. Dept. of Justice's attack on Microsoft's operating system monopoly.]

I consider all this to be a graphic example of why those who would penalize market-dominating "monopolies" for their success are impatiently short-sighted and therefore often wrong....

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