30 May 2003 Microsoft and AOL Time Warner have agreed to settle any outstanding litigation over Netscape, AOL’s browser subsidiary, in a landmark licensing deal.

Microsoft will pay AOL $750 million as part of a seven-year deal that will allow AOL to continue to use Microsoft’s Internet Explorer technology in its own proprietary browser, royalty-free. AOL will also receive a long-term, non-exclusive licence to use Microsoft’s Windows Media software.

In a press conference to announce the deal, Microsoft chairman and chief software architect Bill Gates said, “This puts any past issues behind us.” These issues include an ongoing anti-trust complaint AOL filed against Microsoft in January 2002.

Analysts agreed that the deal was a good one for both companies. For Microsoft, it gains access to another 32 million subscribers to AOL’s Internet service as potential customers of its Windows Media 9 software — locking them in to its proprietary media streaming technology.

To date, Microsoft has found it difficult to penetrate this market, with AOL favouring other companies such as RealNetworks.

For AOL, meanwhile, Microsoft has agreed to distribute AOL Internet access CDs worldwide to smaller PC manufacturers that have licensed Windows. According to Gates, these manufacturers make up about a quarter of the worldwide PC market, so AOL will also gain access to millions of potential new subscribers.

Both companies hope that AOL’s decision to adopt Microsoft’s Windows Media technology will encourage other media groups to adopt it, accelerating the adoption of digital media and making it easier to charge for it.

However, the future seems uncertain for Netscape. CEO Richard Parsons said AOL will continue to evaluate Netscape’s value as a product, but will use Internet Explorer technology in its flagship browser.

Other implications of the deal include :

• Microsoft will provide AOL with beta versions of future Windows iterations and allow AOL to participate in tests of the upcoming ‘Longhorn’ operating system.
• AOL and Microsoft will explore ways for AOL Instant Messenger and Microsoft’s equivalent, MSN Messenger, to interoperate. Until now, AOL has ‘walled off’ its subscribers from using competing instant messaging products.
• Microsoft will expand its support contract with AOL and allow AOL engineers to work in its Redmond research campus.