The Cutting Edge: COMPUTING / TECHNOLOGY / INNOVATION : On-Line Providers Take Aim at Microsoft

With their firms’ share prices slipping on worries about Microsoft’s upcoming on-line service, executives of two of the nation’s leading on-line service providers took aim at the software company Tuesday over its ambitions to become a player in their business, suggesting it would be an unfair competitor.

America Online shares fell $6.75, or 9.3%, to $66.25 Monday in heavy Nasdaq trading, and shares of H&R; Block, which owns CompuServe, fell $1.25, or 2.9%, to $42.375 on the New York Stock Exchange.

“It’s because of Marvel,” said Keith Benjamin, analyst at Robertson Stephens.

Marvel is the code name of the on-line service Microsoft, the world’s largest personal computer software company, is developing. Until now, Microsoft officials would not officially confirm that the company would introduce such a service, but the Redmond, Wash.-based firm said its chairman and chief executive, Bill Gates, will unveil its on-line strategy at the big Comdex computer show in Las Vegas next week.

Speaking at a conference in New York on the future of electronic commerce, executives from America Online and CompuServe said they are concerned that Microsoft may include an on-line service directly in its soon-to-be-released Windows 95 operating system. That would enable a computer user to hook into Microsoft’s service with a click of a mouse. To access America Online or CompuServe, by contrast, users have to load up a separate program.

“The (Windows) Operating System is almost like what dial tone is to the phone industry,” said Steve Case, America Online’s chief executive. He argued that just as consumers who pick up a phone automatically get a phone company’s signal, Microsoft’s huge installed base means that anybody who signs on to a computer will be on its “line.” Phone firms have been regulated to assure access to other telecommunications concerns, Case said, and in the computer field, “there needs to be a level playing field on which companies can compete.”

Case said Microsoft should be free to market a stand-alone on-line service that competes with existing services but that such a service must remain distinct from Windows 95.

He noted that the Justice Department has raised concerns about the antitrust implications of Microsoft’s acquisition of Intuit Inc. He said America Online is watching to see how regulators will act.

Said Tim Oren, CompuServe’s technology vice president, who was also at the conference: “We welcome the competition as long as the playing field is level and we’re not dealing with cross-subsidies.” In a cross-subsidy, a company sells a product at less than market value by supporting it with resources from other units. The executives expressed concern about the entry of not only Microsoft, but also the potential for phone companies, specifically AT&T; Corp., to join the competition.