Behind Bill Gates's Bid To Extend His Empire

Critics say on-line service would become No. 1 overnight

ONCE just a computer chat-line for academics, "The Net" is now mainstream enough to be the title of a summer movie release. Already, millions of people use the global computer network to gather information, shop, and communicate.

But if this is the age of the Internet, as Microsoft Corporation chairman William Gates suggests, it is also the age of Bill Gates - one of the world's richest and most powerful techno-entrepreneurs.

The United States Justice Department is worried that the man who has dominated personal-computer software is poised to gain a huge - and possibly unfair - influence over the networks that connect PCs worldwide. It is considering taking action to stop him.

The stakes are huge. Microsoft's entry into on-line services could signal a turning point in the way society uses technology.

In two weeks, Microsoft will roll out an on-line service of its own. Like existing on-line networks, the new Microsoft Network will link subscription-paying members nationwide in a sprawling web of computers and telephone lines.

And like its rivals, it will offer connection to the larger Internet.

What is unique, critics say, is the marketing leverage Microsoft will have. The company makes Windows, the software that runs the vast majority of PCs sold today. Anyone who buys the new version of Windows coming out this month, or who buys a computer with Windows, will be invited to join the Microsoft Network (MSN).

"If the government has the people's best interest in mind, I believe they will stop Microsoft from doing that," says David Pool, executive vice president of Compuserve, one of the current on-line-industry leaders.

For some months, the Justice Department has been considering antitrust action against the "bundling" of the MSN promotion with the new software, known as Windows 95. Now Microsoft is shipping code to retailers in preparation for the Aug. 24 release, leaving the industry on edge to see if the agency will act.

While Mr. Gates says the promotion is "just an advertisement," competitors say it will boost Microsoft from nowhere to No. 1 in a hurry. By simply clicking "yes" to an invitation, Windows 95 users can go on-line after a brief enrollment in MSN. Rival services currently have to pay computer manufacturers if they want to reach consumers in a similar way.

Regardless of how the antitrust issue plays out, Microsoft's entry into on-line services could dramatically reshape use of the Internet. At present, only an estimated 15 million worldwide are on-line subscribers.

But the number appears sure to soar. The PC is becoming affordable as a mainstream consumer-electronics item. Meanwhile, on-line "content providers," from the Atlantic Monthly magazine to amateur fiction writers, are setting up electronic shop in droves. Gates is responding to this trend, but given Microsoft's marketing muscle, he will also accelerate it.

"We will be in an environment where if you want information, it comes to you over a wire," says Chris Le Tocq, an analyst with SofTracks Inc., a research firm in Los Altos, Calif.

Virtually every analyst agrees that the Internet itself is too big and too amorphous to be dominated by Gates or anyone else.

But "it will take longer than people think for the Internet to become pervasive. He'll find a way to insinuate himself in there at every step" with Microsoft services, predicts Jesse Berst, who publishes Windows Watcher, a newsletter in Redmond, Wash.

On-line services typically collect fees from members for every hour they are connected, whether to the Internet or to the home service such as MSN. Microsoft also will collect a percentage of revenues reaped by companies who sell things on MSN. If past experience is a guide, Microsoft will undercut rivals on price.

One way Microsoft hopes to gain an edge is by creating links between its software and the MSN. Information about Microsoft products will be easily accessible to members of the service, and the Network is designed so that navigation will feel familiar to Windows users.

Will all this allow the company that Gates built to dominate the on-line industry?

"I think that Microsoft has an excellent chance of doing just that," Mr. Le Tocq says.

Others say computing changes too fast to worry much about monopoly. "Technology just has such a short shelf life," says Mark Macgillivray, managing director of H&M Consulting in Sunnyvale, Calif.

Moreover, while Microsoft will likely lure millions of people newly on-line, keeping them on MSN could be a struggle. Judging by current "churn" in the market, many customers who start with Microsoft will move to other services. "I think we'll go toe-to-toe with them and not have any problems," as long as there is a level playing field, says Mr. Pool of Compuserve.

The Justice Department review follows two previous antitrust investigations of Microsoft. Last year a settlement was reached that changed licensing practices for Windows. And Microsoft withdrew under Justice Department pressure from its planned buyout of Intuit Inc., the leader in financial-services software.

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