Gateway?s decision to offer customers a choice of browsers with Windows 98 took on a broader significance in the light of the Microsoft antitrust actions (see News section). With other PC makers set to follow suit, the move shows that Microsoft is already being forced to make concessions in its relationships with its licensees, even before the legal battles begin again. But Gateway?s decision also highlights other trends - the desperate competitiveness of the market and PC makers? need to offer any point of differentiation; and the move of hardware makers to base that differentiation on Internet services.
Gateway will offer buyers of its Windows 98 PCs a choice between Internet Explorer and Netscape Communicator. While Microsoft prepares to defend in court its right to integrate Internet Explorer with Windows 98 and control the Windows 98 start-up screen, the deal with Gateway signals that the software giant has become much more flexible in negotiations with PC vendors.
Gateway is the first vendor to announce that it will ship Communicator ? together with Internet Explorer ? on Windows 98 PCs. It was one of the most vocal critics of Microsoft at the hearings that led up to the Department of Justice?s antitrust suit. A company representative said the company ?asked Microsoft to remove the icon for IE from the desktop, but representatives have refused each request, saying that the browser cannot be removed or sold separately."
Gateway executive Rick Brownrigg testified at the hearings that the company would ?like the flexibility to give its customers a choice of Internet access providers as part of the PC boot-up sequence and in the process offer those users a choice of browsers when they register.? Gateway's vice president of marketing, Bart Brown, said Microsoft agreed to a deal that allows Gateway to edit the Internet set-up procedure that is built into Windows 98. Instead of offering MSN as the default Internet service provider, the customer will be offered the Gateway.net Internet service. The customer can then select either Internet Explorer or Netscape Communicator to access the service.
Brown said the deal with Microsoft was possible because Gateway, in the US, is both a PC vendor and an ISP.
Until now, Microsoft has maintained that Internet Explorer is so deeply integrated with Windows 98, that the two can not be separated.
Earlier this month, Microsoft refused a settlement with the US Department of Justice (DoJ) to either remove Internet Explorer from Windows 98, or ship Netscape Navigator as well. The DoJ is now demanding a preliminary injunction to the same effect.
Last year, Compaq testified in court that Microsoft had threatened to terminate its Windows licence if it removed the Internet Explorer icon from the Windows 95 desktop.
However, even if a Gateway customer chooses Netscape Communicator as the default browser, Internet Explorer will still be on the system. A URL that is embedded in a Word document, for instance, will still call up Internet Explorer. But clicking on an HTML Link will open Communicator.
Netscape called Gateway's decision "a good first step? and pointed out that other PC makers, including IBM, Hewlett Packard and NEC, are looking into ways to promote Navigator more actively and reduce their dependence on Microsoft. NEC and HP, as well as Compaq and Micron, testified against Microsoft at the antitrust hearings, complaining of not being able to offer choice. HP is now considering bundling Navigator with Windows again - as it has done in the past - and IBM already offers Netscape as the default on some PC models. Dell still charges customers a fee to have Navigator bundled.
Microsoft said OEMs had always been free to offer alternative browsers if they chose to, but would not comment on whether the looming trials had forced it to make concessions to its PC licensees but it has been a common tactic of the software giant to make compromises at the last minute before legal action takes place.
For instance, it signed a pact with the EC at the turn of the year, agreeing to drop some obligations in its contracts with ISPs to make them more flexible. This also gave the ISPs more leeway to promote alternatives to IE.
However, some analysts were critical of Gateway too, claiming it has offered choice in the browser area but forces customers to take its Internet service, so ?swapping one lock-in for another? as one put it.
For Gateway, any additional service it can market to customers may mean chipping into the market lead of its arch rival Dell. Increasingly, the Internet is seen as the main source of differentiating products and services that PC makers can use to ?add value? to their boxes and attract the customers in this cut throat sector. Many PC vendors are expected to acquire ISP status in order to broaden the range of services they can offer customers, especially consumers in the low cost market, who are often keen on a ?one-stop shop? purchase.
In another attempt to differentiate itself from Dell and build on its Internet strengths, Gateway has moved into leasing, with a programme to combine financing and Internet access. The scheme is US-only currently but will be rolled out to Europe later in the year.
The programme is called Your:)Ware(see News section). It allows customers to buy a new, customised PC but pay in monthly instalments over two years. At the end of this period, the user can keep the PC, or trade it in at its market value toward the purchase of a new system. The offer includes unlimited Internet access via Gateway?s own Internet service, Gateway.net.
?Today, the two major factors precluding a consumer from purchasing a PC are the up front cost and fear of technology obsolescence," Gateway chairman and CEO Ted Waitt said in a statement. He said the new programme addresses both.
The deal differs from a leasing, Gateway said, in that the customer immediately becomes the owner of the PC. From Gateway?s perspective, the arrangement allows it to book the revenue when the PC is sold.
The current offering is specifically targeted at consumers. ?We are planning a more robust offering for businesses later this summer," said Bart Brown, Gateway?s vice president of marketing.
Initially, Your:)Ware will only be offered in the US. Bart Brown said Gateway will launch the service internationally on a country by country basis, working with local financing partners.
?This is a way for Gateway to offer more of a complete solution to customers, and at the same time improve its own profitability," said Charles Smulders, a senior analyst with market researcher Dataquest. He believes adding services ? such as the financing and the Internet access - to its hardware offering will benefit the company?s bottom line.
Unlike its competitors in the consumer arena, Gateway is not selling a sub-$1,000 PC on the US market. A combination of financing and additional services, may offer the company an alternative way of luring lower income families to its systems.
With all its rival targeting this consumer, budget market, Gateway has limited time to make its programmes work and gain an edge, especially as it has taken the gamble of staying clear of the sub-$1,000 sector. The renewed pressure on Microsoft may have the knock-on effect of sparking a new war among the PC makers, this time centred around the browsers and the Internet.
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