Section 1.4. Microsoft, IE, and the Browser Wars

1.4. Microsoft, IE, and the Browser Wars

Windows 95 (codenamed "Chicago" inside Microsoft) was far along in development by the fall of 1994. At that stage, the company was not planning to include a web browser as part of the operating system. By the start of 1995, however, Microsoft executives had decided that Netscape's web browser was a threat, and they decided to quickly develop a browser of their own. At the time, a company named Spyglass had licensed NCSA's Mosaic technology and trademarks, and it in turn licensed that same technology to Microsoft as the base of what would become Internet Explorer.

Traces of history

To this day, if you open IE and go to Help About Internet Explorer, it still says "Based on NCSA Mosaic... Distributed under a licensing agreement with Spyglass, Inc."

The arrangement was that Microsoft would pay Spyglass a quarterly fee plus a percentage of the revenues Microsoft realized from selling the software. Since Microsoft ended up giving IE away for free, Spyglass saw only a fraction of what it had expected to make, taking in only around $400,000. Eventually, after Spyglass filed a lawsuit in 1997, Microsoft settled by paying the small company $8 million.

Still, even as late as June 1995, with the release date for Windows 95 getting closer and closer, Microsoft was not planning to include its browser as part of Windows. Instead, Internet Explorer was to be part of the "Microsoft Plus! for Windows 95" CD (or floppies), which was sold separately from Windows 95.

At that point, however, things changed at Microsoft. Netscape was now seen as too much of a threat, which had to be neutralized as quickly and as ruthlessly as possible; as one Microsoft exec is alleged to have said, the company decided to "cut off Netscape's air supply." First, there was the matter of price. Netscape's browser was available for free to many classes of users, but businesses and others were expected to pay a fee for the software. While Microsoft had originally planned to charge for IE by including it on the Plus! offering, this idea was abandoned in favor of giving the browser away for free with the Windows operating system.

By the time Windows 95 shipped to computer companies such as Dell, IBM, and Compaq in July 1995, Internet Explorer 1.0 was included as part of the operating system (but on a separate disk). The browser was tied to the Windows OS, although hardware manufacturers could, technically, installor removeIE from Windows without changing how the rest of the OS worked, and users could remove it using the Add/Remove Programs control panel (IE 2.0, released in November 1995, offered the same functionality...or lack of it). You can see IE 1.0 in [click here].

To prevent the hardware manufacturers from decoupling the new browser from the operating system, Microsoft decided to go a step further and tie the two together contractually. The licenses that Microsoft had computer companies agree to prohibited those companies from removing Internet Explorer from Windows 95. If the companies removed any of the icons or programs from the Windows desktop or Start menu, or gave consumers options for third-party programs while the computer was booting, they faced a dire consequence: Microsoft would terminate their licenses to sell Windows, or force them to pay retail prices, thus destroying their already-thin margins. With hardball tactics like this, it was essentially impossible for Dell, IBM, Gateway, and similar companies to remove Microsoft's web browser from the computers they shipped to consumers, or to promote Netscape's.

Compaq tested Microsoft's resolve in August 1995, when, after signing promotional deals with other ISPs, it began removing the IE icon from desktops and replaced it with an icon for Netscape Navigator. After making its displeasure known for months, Microsoft responded with a nuclear bomb: in a letter dated May 31, 1996, the company threatened to end Compaq's license to sell Windows 95 unless Compaq came to its senses and restored the IE icon. Within a month, the IE icon was back on Compaq desktops. At the time, Compaq sold more PCs than any other Microsoft partneryet Microsoft was prepared to sacrifice that outlet for its software in order to both protect its web browser and damage its biggest competitor in the browser world.

As a kickback to Compaq for agreeing to comply with Microsoft's demands, Microsoft promised that Compaq's price for Windows would be less than that paid by any other hardware manufacturer. In addition, starting in March 1998, Microsoft waived any fees that Compaq would normally have to pay for Microsoft products on computers used by Compaq employees.

PC companies aroused Microsoft's wrath even if they just failed to use IE on their own corporate networks. Gateway used Netscape internally on its own computers, but in February 1997, Microsoft let Gateway know that this was a source of friction between the companies and that Microsoft would gladly help cover Gateway's expenses if it decided to switch over to IE. Gateway refused; consequently, Gateway paid a higher price for Windows than any of its competitors.

Tightening the noose

Microsoft later decided to make it virtually impossible for the IBMs and Dells of the world (as well as users) to remove IE from its operating system technically, as well as legally. Windows 98 users were stuck with IE, which increased the likelihood that they would use it and decreased the incentives for computer manufacturers to include other web browsers (such as Netscape) that they would have to support. In a blatant declaration of intent, Microsoft VP Brad Chase wrote in an email to his bosses, "We will bind the shell to the Internet Explorer, so that running any other browser is a jolting experience."

1.4.1. Behind the Browser Wars

So why did Microsoft embark on this campaign to decimate Netscape (and every other web browser, for that matter)a course of action that was found by the courts to be an illegal leveraging of its monopoly? Why did it play hardball with the companies who provided Windows to consumers and businesses on the machines they boughtactions that were also found to be illegal? And why did big companies like IBM and Dell accede to Microsoft's demands?

At the time of Netscape's rise, although Windows was the most widely used desktop operating system, the browser was becoming more important than the OS. If users spent most of their computer time using a web browser, it didn't really matter what operating system they were running. And Netscape ran on many operating systems besides Windows, including Mac OS, Unix, and an upstart OS known as Linux. To protect the Windows desktop from becoming marginalized, it was in Microsoft's interest to make it as difficult as possible for consumers to run any browser other than Internet Explorer. The company knew that the vast majority of consumers had limited technical knowledge and either could not or would not download additional software onto their computers. The browser that was on the computer when the consumer first booted the machine was the one that was almost certainly going to be used. Therefore, Microsoft needed to exert control over the companies selling those computers, so that Netscape wasn't an option for consumers and IE became their only choice.

Hardware manufacturers might not have liked Microsoft's policies, but they ultimately had no choice but to give in. If a consumer has just purchased a new PC from Gateway and has a problem with the software on it, he will call Gateway for help, not Microsoft. That call will cost Gateway money. If there are two web browsers preinstalled on that computer, Gateway will have to spend additional money to make sure that both browsers work with everything on the machine, and it faces the possibility of more calls for help and higher support costs. It's therefore in Gateway's financial interests to include only one browser on its machines...and Microsoft forcibly limited Gateway's browser choices to one: IE.

The PC companies really had no choice. If they lost their licenses to sell Windows, they would quite simply go out of business. This was the big stick that Microsoft held, and it wielded it with ruthless efficiency. It didn't matter to Microsoft that its partners in the computer business had already spent millions customizing their machines with tutorials and other tools to support Netscape and would lose those investments. It also didn't matter to Microsoft that its decision to postpone the release of Windows 98 solely so that IE 4 could be inextricably bound to the operating systemeven though there was no technical reason for doing someant that those same companies stood to lose millions more in sales during the busy back-to-school and Christmas seasons (in fact, one email from company VP Paul Maritz said that the integration of browser and OS was "the only thing that makes sense even if OEMs suffer").

Ultimately, Microsoft's strategy to promote its own web browser by leveraging its operating system monopoly worked. By the beginning of 1998, Microsoft executive Joachim Kempin reported to management that out of 60 sources for computers, Netscape could now be found on only 4. And on those four, Netscape was provided in a way that made it hard for consumers to find, install, and use it (on a separate CD-ROM, for instance).

Netscape didn't just roll over and play dead in the face of Microsoft's assaults, however. It fought back, and thus began what became known as the browser wars, the struggle between Microsoft and Netscape for ownership of the Web. Unfortunately, facing Microsoft's enormous cash reserves, its monopoly in the desktop market, and its desire to defend and extend that monopoly by any means necessary, Netscape never had a chance.

The browser wars were not good for anyoneespecially not for web users. Microsoft and Netscape released new versions of their browsers as fast as possible, each trying to outdo the other. The aim was to stay ahead of the competition by constantly developing and incorporating new features, but unfortunately these advancements came at the expense of stability and security. Netscape, for instance, decided not just to offer the web browserNavigatoras a separate download, but also to combine Navigator with an email program, an address book, a web page editor, and more, creating a suite known as Netscape Communicator. The result? An already big, and increasingly buggy, program got bigger and buggier.

In addition, both companies felt at the time that they had to lock developers and consumers into using their products as much as possible, and the way to achieve this was by extending the basic language of the WebHTML, or Hypertext Markup Languagewith all sorts of proprietary extensions that only worked, or worked best, with one particular web browser. Netscape, for example, introduced the abomination known as the <BLINK> tag, which made text literally blink off and on in a painful approximation of the Las Vegas Strip, while Microsoft countered with the annoying and widely vilified <MARQUEE> tag, which caused text to scroll by in an everlasting stream that quickly proved both impossible to read and terribly distracting if you were trying to read something else.

Finally, after three years of back-and-forth combat, Netscape saw the handwriting on the wall: it was getting beaten. Microsoft's web browser was free and bundled with every copy of Windows shipped on a new PC, making it especially easy for businesses to adopt IE en masse. The market share for Netscape's browser was decreasing at a rapid clip, and it reported its first losing quarter at the end of 1997, which led to layoffs at the beginning of 1998. Something had to happen, or the Netscape browser was doomed.