Microsoft, AOL Fail to Reach Deal
Negotiations between AOL Time Warner Inc. and Microsoft Corp. over a major distribution and software-sharing deal collapsed Saturday, setting the stage for an increasingly fierce battle between the rivals over consumers and competing technologies.
The failure of the two high-tech giants to reach agreement means they will now find themselves competing even more aggressively to deliver music, video and online messaging services to consumers. And it will mark the biggest test yet of their differing strategies to conquer the Internet: Microsoft through its software; AOL by virtue of its powerful collection of media and entertainment properties.
The talks during the last several weeks have focused on renewing a contract that would have given AOL prominent placement in Microsoft’s new Windows XP operating system, which is set to debut on Oct. 25. At stake was a means for New York-based AOL to distribute its software for Internet access, although company executives have downplayed its significance.
In exchange, AOL would have incorporated Microsoft’s Web browser in its software. Without a deal, Microsoft faces the threat that AOL will choose its own browser rather than Microsoft’s Internet Explorer as the tool customers use to search for Web sites.
Both sides said they saw no chance of resuming talks, although the discussions have stalled and been resurrected before. Ray Oglethorpe, president of AOL’s online unit, and Jim Allchin, a Microsoft vice president, called off the deal in a telephone call Saturday when the talks disintegrated over several issues, sources said.
Why the deal broke down is itself under debate. One version is that the chief problem was Microsoft’s demand that AOL use Microsoft’s Windows Media Player, software that allows users to play music and video on their personal computers, sources said.
But according to another version of how the talks ended, the deal fell through because Microsoft wanted AOL to make its popular instant-messaging service compatible with Microsoft’s, and AOL refused, sources said. But an AOL executive denied that the talks broke down over instant messaging.
