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. Last Updated: 07/27/2016

Merger Forms a Rival to Microsoft

NEW YORK -- To the company's adversaries, the very name "Microsoft" suggests menacing power. It has been called the Death Star, an 360-kilogram gorilla and far worse.

And in the U.S. government's sweeping antitrust case, the Microsoft Corporation was portrayed in convincing detail as a monopolistic bully. America Online Inc., in particular, was bent to Microsoft's will, according to court testimony.

But after America Online's move to buy Time Warner Inc., at $150 billion or so the largest merger in history, Microsoft suddenly seems less threatening - less the irresistible army of the Internet era. AOL Time Warner, as the new company is to be called, promises to be a formidable power in its own right, perhaps more powerful in some ways than Bill Gates' creation.

Microsoft, to be sure, quickly gained the upper hand a few years ago in its first Internet battle - against the Netscape Communications Corporation, which America Online bought last year. Microsoft saw Netscape, the pioneer in web browsing software, as a threat to its dominance of personal computing.

Microsoft's response was swift and aggressive - and, according to the Justice Department and 19 states, against the law.

America Online's deal for Time Warner changes none of the facts in the Microsoft antitrust case, of course. And Microsoft's business practices, not simply its size, are at issue. But antitrust experts say the merger could figure into the calculations the court makes on sanctions against Microsoft, if it loses the case, or in any settlement talks.

"If Microsoft is an 800-pound gorilla, then there is certainly another beefy gorilla out there now," said William Kovacic, a professor at the George Washington University law school. "This deal does underline the possibilities for upheaval and transformation in this industry. That could well make it more difficult for a judge to choose a remedy that has dramatic, irreversible effects, like breaking up the company."

Yet in the online business, Microsoft is in the unfamiliar position of playing David to America Online's Goliath. In the online access market, in which subscribers pay fees, Microsoft's MSN service had nearly 2 million members in the third quarter last year. That compared with 18 million for America Online, according to Jupiter Communications, a research firm. America Online says it has 20 million subscribers; Microsoft did not disclose its current numbers.

Microsoft does have some popular World Wide Web sites, like its Expedia travel and Carpoint auto sites, which can be reached by users through any Internet access service. Yet even by the measure of number of visitors to its Internet sites, Microsoft trails America Online badly. According to Media Metrix, which monitors web traffic, America Online's web sites had 54 million visitors in November, compared with 38 million for Microsoft's sites.

Microsoft has also made some media investments, including a joint venture with NBC in MSNBC, the cable and online news service.

But recently, Microsoft has shifted from efforts to become a media company. Instead, it has tried to build up its web offerings to deliver personalized information online - e-mail, news, stock prices, travel advice, even horoscopes - that people use to become "more productive" in their everyday lives, just as Microsoft's popular Office software makes people more productive at work.

"The new strategy for MSN is about taking us back to our roots - but twisted and adapted for the Internet," Brad Chase, a Microsoft senior vice president explained in a recent interview before the America Online-Time Warner deal was announced. "There are parts of the media business that we do, selling ads and so forth. But our main focus is not going to be on creating content and media, which is what we had been trying to do for a couple of years."