Listening to many commentators laud the settlement, with which the companies pledged to work more closely on instant messaging interoperability and Microsoft wrote AOL Time Warner a check for $750 million, one might think this is the biggest news since the invention of the World Wide Web.
Analysts swooned. The Seattle Times predicted that the "settlement could once again transform the industry--and potentially change the way consumers buy music, movies and television service." The New York Times believes that the deal "reflects a fundamental change in direction for both companies."
Well, it might. But it's pretty unlikely. Remember the excessive bloviation that accompanied the January 2000 announcement that America Online was buying Time Warner? Analysts confidently predicted that that flop of a deal would change the business world as we knew it.
Bear Stearns financial analyst Scott Ehrens said at the time: "Since we view it as the premier company in one of the hottest sectors in the market, we feel that AOL Time Warner could garner an unprecedented premium to its peers and therefore continue to recommend purchase of the stock to long term investors." Phil Leigh, an analyst at Raymond James, said with a straight face: "It is probably the most significant development in the Internet business world to date." Gerald Levin, Time Warner's then chairman and chief executive, told reporters at a news conference: "What you'll see early on and very quickly are a lot of things AOL can do together with new forms of functionality that we have not seen in the broadband cable industry."
Like kissing hundreds of billions of dollars of value goodbye, perhaps? AOL was trading at around $90 at its peak, just before the January 2000 announcement. Now it's plummeted to a disheartening $15--with something like $300 billion vanishing into thin air. Sure, that changed the business world as we knew it--though not exactly in the way that Steve Case and Gerald Levin had intended.
There are four important points to note in last week's news. First, there is no requirement that AOL actually use Microsoft's technology. The wording of the announcement was exquisitely careful: AOL may "use, if it so chooses, Microsoft's entire Windows Media 9 Series digital media platform."
Only if it "so chooses?" There's a word for that loopy language: vaporware. Without an actual commitment on the part of AOL, it amounts to little more than a tentative plan to announce some cool products at some future date to be determined sometime, well, in the future.
You may recall that Microsoft and AOL called a truce back in 1996, when the online service picked Internet Explorer as its browser of choice. The detente didn't last long. Bitter public recriminations erupted two years later, when Microsoft's antitrust trial began and an AOL executive took the stand to testify for the government. The same scenario could play out again.
Second, the obvious point: Microsoft has one less lawsuit to worry about.
Because antitrust law is far from coherent and is internally contradictory, the uncertainty of these types of lawsuits drive investors to distraction.
There is no requirement that AOL actually use Microsoft's technology.
This is part of Microsoft's broader strategy to systematically delete legal threats that loom over it, typically by settling them. Remember that Microsoft has nixed the U.S. Department of Justice's antitrust suit by striking a deal that required miminal changes in product design. It settled a California class-action lawsuit in January, and it stands a good chance of winning a private antitrust lawsuit brought by Sun Microsystems that's now before a federal appeals court.
Third, last week's deal also calls into question AOL's ongoing commitment to Mozilla, a very capable set of applications that includes a browser, a mail reader, and an Internet Relay Chat client. Mozilla must have been a useful arrow in a negotiator's quiver for the last few months, with Microsoft fretting about the theoretical possibility that it would be embedded in the next version of AOL's client software. But now that negotiations are over and AOL has the ongoing right to use IE royalty-free for seven years, the company has a reduced incentive to spend as much developer effort on the project now.
This would make a difference for Web developers. AOL's commitment to Mozilla, the descendant of the venerable Netscape browser, and it decision to release it under a modified open-source license, has been a driving force toward creating Web sites that comply with the World Wide Web Consortium's standards. It's kept developers honest, spurring them to avoid sloppy Microsoft-specific coding that might make sites render properly only with IE.
Fourth, the deal shows that the Time Warner suits are back in control at AOL. They don't share Case's history with Microsoft--remember how e-mail messages made public during the Microsoft antitrust case showed that Case and Netscape Communications CEO Jim Barksdale viewed Bill Gates as Adolf Hitler and themselves as the allied powers warring against the Microsoft blitzkrieg?
The deal shows that the Time Warner suits are back in control at AOL.
Yes, these changes will affect the IT industry. But so have the severe acute respiratory syndrome (SARS) epidemic, currency exchange rates, tax regulations, interest rates and many other variables that fluctuate every day. Will last week's deal radically transform the industry? Don't bet on it.
Declan McCullagh is CNET News.com's chief political correspondent. He spent more than a decade in Washington, D.C., chronicling the busy intersection between technology and politics. Previously, he was the Washington bureau chief for Wired News, and a reporter for Time.com, Time magazine and HotWired. McCullagh has taught journalism at American University and been an adjunct professor at Case Western University.