Under the agreement, Microsoft will grant AOL a seven-year royalty-free license to its Internet browsing software, and faster and greater access to Microsoft’s Windows operating system. That will make it easier for AOL’s popular online service to work with Windows software, which runs more than 90 percent of all personal computers.
Microsoft will also grant AOL Time Warner a long-term license to its software for delivering music and video over the Internet. Microsoft agreed to work closely with AOL Time Warner to develop software to protect AOL’s movie and music assets from piracy. The two companies also agreed to discuss how to open up their networks for sending and receiving instant messages over the Internet, although they have said similar things before.
The unexpected alliance between the corporate titans reflects a fundamental change in direction for both companies with the fading of the fad for convergence between technology and media companies.
AOL Time Warner is far less a technology company than it once was. Its Netscape subsidiary, the commercial pioneer in Web browsing software and the star witness in the government’s antitrust case against Microsoft, has shriveled.
At the same time, Microsoft — which made a flurry of investments in the 1990’s that led many media executives to say they feared that Microsoft might overwhelm them — has recently focused on its basic software business.
Strategically, the two companies — though still competitors in some fields — have largely returned to their traditional corners.
“This is the end of a long war,” said David B. Yoffie, a professor at the Harvard Business School. “AOL Time Warner is much more of a pure media company, while Microsoft has returned much more to its software roots.”
The cooperation agreement includes a $750 million payment from Microsoft to settle a private antitrust suit brought by the Netscape unit of AOL Time Warner in January 2002. The private case followed a ruling by a federal appeals court in the long-running suit against Microsoft, brought by the government in 1998; the judge ruled that the company had repeatedly violated antitrust laws by thwarting competition to preserve its monopoly in personal computer operating systems.
The $750 million payment is a huge legal settlement, though it represents little more than pocket change to Microsoft, which has more than $40 billion in cash in the bank.