Microsoft Excluded Navigator from the IAP Channel: A Look Into Their Aggressive Strategy

3. Excluding Navigator from the IAP Channel

4. By late 1995, Microsoft had identified bundling with the client software of IAPs as the other of the two most efficient channels for distributing browsing software. By that time, however, several of the most popular IAPs were shipping Navigator. Recognizing that it was starting from behind, Microsoft devised an aggressive strategy to capture the IAP channel from Netscape.

   
   

   In February 1996, Cameron Myhrvold, the Microsoft executive in charge of the firm’s relations with ISPs, outlined the strategy in a memorandum to his colleagues and superiors within the company:

   
   

It’s essential we increase the share of our browser. Network operators [(IAPs, plus the telephone and cable companies providing Internet access services)] are important distributors and we will license at no cost the Internet Explorer for distribution with their Internet access business to maximize the distribution/adoption of IE as browser of choice.

We will attempt exclusive arrangements, fight for preferred status, but settle for parity with NetScape. Even offering IE for free will not win us every sale. In the U.S. we will offer IE broadly to net[work ]op[erator]s and IAPs including the many hundreds of smaller IAPs.

In the first step of this strategy, Microsoft enticed ISPs with small subscriber bases to distribute Internet Explorer and to make it their default browsing software by offering for free both a license to distribute Internet Explorer and a software kit that made it easy for ISPs with limited resources to adapt Internet Explorer for bundling with their services.

243. Those who planned and implemented Microsoft’s IAP campaign believed that, if IAPs gave new subscribers a choice between Internet Explorer and Navigator, most of them would pick Navigator — both because Netscape’s brand had become nearly synonymous with the Web in the public consciousness and because Navigator had developed a much better reputation for quality than Internet Explorer.

     
     

     To compensate for Navigator’s advantage, Microsoft reinforced its free distribution of Internet Explorer licenses and the access kits with three tactics designed to induce IAPs with large subscriber bases not only to distribute and promote Internet Explorer, but also to constrain severely their distribution and promotion of Navigator and to convert those of their subscribers already using Navigator to Internet Explorer.

244. Microsoft’s first tactic was to develop and include with Windows an Internet signup program that made it simple for users to download access software from, and subscribe to, any IAP appearing on a list assembled by Microsoft.

     
     

     In exchange for their inclusion on this list, the leading IAPs agreed, at Microsoft’s insistence, to distribute and promote Internet Explorer, to refrain from promoting non-Microsoft Web browsing software, and to ensure that they distributed non-Microsoft browsing software to only a limited percentage of their subscribers.

     
     

     Although the percentages varied by IAP, the most common figure was seventy-five percent.

245. In a similar tactic aimed at a more important IAP sub-channel, Microsoft created an “Online Services Folder” and placed an icon for that folder on the Windows desktop.

     
     

     In exchange for the pre-installation of their access software with Windows and for the inclusion of their icons in the Online Services Folder, the leading OLSs agreed, again at Microsoft’s insistence, to distribute and promote Internet Explorer, to refrain from promoting non-Microsoft Web browsing software, and to distribute non-Microsoft browsing software to no more than fifteen percent of their subscribers.

     
     

246. Finally, Microsoft gave IAPs incentives to upgrade the millions of subscribers already using Navigator to proprietary access software that included Internet Explorer. To IAPs included in the Windows Internet sign-up list, Microsoft offered the incentive of reductions in the referral fees it charged for inclusion in the list. To OLSs in the Online Services Folder, Microsoft offered cash bounties.

     
     

247. In sum, Microsoft made substantial sacrifices, including the forfeiture of significant revenue opportunities, in order to induce IAPs to do four things: to distribute access software that came with Internet Explorer; to promote Internet Explorer; to upgrade existing subscribers to Internet Explorer; and to restrict their distribution and promotion of non-Microsoft browsing software.

     
     

     The restrictions on the freedom of IAPs to distribute and promote Navigator were far broader than they needed to be in order to achieve any economic efficiency.

     
     

     This is especially true given the fact that Microsoft never expected Internet Explorer to generate any revenue.

     
     

     Ultimately, the inducements that Microsoft offered IAPs at substantial cost to itself, together with the restrictive conditions it imposed on IAPs, did the four things they were designed to accomplish: They caused Internet Explorer’s usage share to surge; they caused Navigator’s usage share to plummet; they raised Netscape’s own costs; and they sealed off a major portion of the IAP channel from the prospect of recapture by Navigator.

     
     

     As an ancillary effect, Microsoft’s campaign to seize the IAP channel significantly hampered the ability of consumers to make their choice of Web browser products based on the features of those products.

a. The Internet Explorer Access Kit Agreements

248. In September 1996, Microsoft announced the availability of the “Internet Explorer Access Kit,” or “IEAK.” By simply accessing the correct page on Microsoft’s Web site and clicking on a box to indicate agreement with the license terms, any IAP could download the IEAK, which included a copy of Internet Explorer.

     
     

     With their technical knowledge, sophisticated equipment, and high-bandwidth connections, IAPs found it very convenient to download Internet Explorer and the IEAK from Microsoft’s Web site.

     
     

249. Using the IEAK, an IAP could create a distinctive identity for its service in as little as a few hours by customizing the title bar, icon, start and search pages, and “favorites” in Internet Explorer. The IEAK also made the installation process easy for IAPs.

     
     

     With the IEAK, IAPs could avoid piecemeal installation of various programs and instead create an automated, comprehensive installation package in which all settings and options were pre-configured.

     
     

     In addition to ease of customization and installation, the IEAK enabled each IAP to preset the default home page so that customers would be taken to the IAP’s Web site whenever they logged onto the Internet. This was important to IAPs because setting the user’s home page to the IAP’s Web site gave the IAPs advertising and promotional opportunities.

     
     

     Netscape, by contrast, refused to allow its IAP licensees to move Navigator’s home page from Netscape’s NetCenter portal site.

     
     

250. Many IAPs would have paid for the right to distribute Internet Explorer. Indeed, Netscape was charging IAPs between fifteen and twenty dollars per copy of Navigator they distributed. Because of the features and convenience it offered, the IEAK significantly increased the price that IAPs would have been willing to pay.

     
     

     Nevertheless, Microsoft licensed the IEAK, including Internet Explorer, to IAPs at no charge. At the time Microsoft released the IEAK, Netscape did not offer IAPs an analogous tool. Although Netscape eventually followed Microsoft’s lead by introducing a tool kit similar to the IEAK known as Mission Control, that kit was not made available to IAPs until June 1997 — a full nine months after the release of the IEAK.

     
     

     Whereas IAPs could obtain the IEAK for free, Netscape initially charged $1,995 for each copy of Mission Control.

     
     

251. Approximately 2,500 IAPs executed an electronic copy of a license agreement for the IEAK. Included in that number were the eighty IAPs that together accounted for ninety-five percent of all Internet access subscribers in the United States. The IAPs that executed an IEAK license agreement agreed to make Internet Explorer their “preferred” browsing software.

     
     

     The term “preferred” was not defined in the license, and Microsoft did not investigate the extent to which Internet Explorer was in fact enjoying “preferred” status in the client software of its IEAK licensees.

     
     

     In fact, other than to provide information and respond to technical questions, Microsoft made no effort to maintain regular direct contact with the vast majority of the IAPs that had executed licenses.

252. Whether or not IEAK licensees actually gave Internet Explorer preferred status, Microsoft’s decision to license Internet Explorer and the IEAK to IAPs at no charge beguiled many small ISPs that otherwise would not have done so into distributing Internet Explorer to their subscribers.

     
     

     By giving up the opportunity to charge for Internet Explorer, and also by developing the IEAK at substantial cost and offering it at no charge, Microsoft thus increased the flow of Internet Explorer through the crucial IAP channel.

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This court case Civil Action No. 98-1232 (TPJ) retrieved on 2-09-2023, from justice.gov is part of the public domain. The court-created documents are works of the federal government, and under copyright law, are automatically placed in the public domain and may be shared without legal restriction.