USA: COMPUTER DEALERS' GROUP TO CHALLENGE MICROSOFT.

Date: Feb 13, 1995

By Martin Wolk

SEATTLE (Reuter) - Microsoft Corp.'s plans to launch an on-line service, which have raised fears among its rivals, were challenged Monday by a group of computer dealers concerned that their sales will be hurt by the network.

Representatives of ASCII Group Inc., a buying group of 1,075 computer dealers nationwide, will meet with Justice Department officials on Tuesday to discuss their displeasure with the planned Microsoft Network, said Alan Weinberger, executive director of the group.

ASCII is the latest of several industry groups and companies to express concern about the potentially huge competitive advantage Microsoft will have when it launches the network as part of its Windows 95 computer operating system expected to be available by August.

Weinberger said in an interview that the independent dealers of ASCII, who together account for about $5 billion in retail sales, are upset that Microsoft intends to make the new network a vehicle for direct sales of computers and software.

Microsoft last week released a list of more than 50 software and hardware companies that plan to provide product information over the network.

At least two software companies said they plan to sell products through the network, and Microsoft has indicated it expects to generate royalties from such on-line sales.

While existing on-line services such as America Online, CompuServe and Prodigy offer the same ability for companies to bypass dealers and go directly to customers, Weinberger said the Microsoft case was different because of the software giant's dominance in operating systems.

"If you're in a monopoly position in the operating system, you can't just suck everything in with it," said Weinberger. "It's unfair and un-American."

He said computer dealers are particularly irritated because they will be expected to sell the Windows 95 upgrade, which then could undermine future sales of hardware and software.

A spokesman for Redmond, Wash.-based Microsoft said the dealers' concerns were premature.

"This is a product that hasn't even been launched yet in a market that is still so nascent that it's difficult to speculate what the ramifications are," said spokesman Greg Shaw.

But given Microsoft's dominance in the industry and the expected huge success of Windows 95, it's not surprising that the Microsoft Network has attracted a lot of attention.

Shortly after official announcement of the service, cable giant Tele-Communications Inc. took a 20 percent stake for $125 million, giving it an indicated value of $600 million before a single customer signed up.

America Online Inc. has been most prominent among critics of the planned network, contending Microsoft will have a built-in edge because users will be able to access the service with the click of a Windows 95 icon.

Microsoft officials respond that rival companies including America Online already bundle free software with computers, and the ultimate decision about whether to pay for an on-line service belongs to the customer.

Weinberger said his group was asked to provide information for the Justice Department's antitrust investigation of Microsoft's proposed $1.5 billion acquisition of personal finance software company Intuit Inc.

The group initially declined to participate but decided to bring forward its concerns about the on-line network after Microsoft announced the support from hardware and software companies.

"We have no problem if this network would just be an information network," Weinberger said. "The problem is once you get into computer sales."

Microsoft stock ended the day unchanged at $62 on the Nasdaq system, while Intuit fell 75 cents to $68.

Analysts say it is far from certain whether the Justice Department will let Microsoft buy Intuit, maker of the leading personal-finance software Quicken.

Shaw said Microsoft is continuing to provide information about the proposed acquisition to the Justice Department.

(c) Reuters Limited 1995. All rights reserved.