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Dear Bill: e-Letter On Internet Moves & News

Dear Bill:

Quite a hectic few weeks. Did you catch the Department of Justice's stance on your (Microsoft's) stance? It looks like DOJ just wanted an excuse to play cat and mouse with Microsoft. What does it know about browsers? Operating systems? the inevitable evolution of the OS into the network.

A copy of Darwin's Origin of a Species is perhaps in order for Janet Reno.

Because two years ago we saw Microsoft going to the Net top and Netscape (NASDAQ:NSCP) going to the desktop. Zooropia meets Zygote in a primordial stew called the Web. Splitting atoms. Chain reactions the software world has never seen. The golden train spike linking East and West hammered in Utah.

Said another way, this is the inevitable evolution of desktops into Net tops. It's bigger than Microsoft, Netscape, Sun (NASDAQ:SUNW), IBM (NYSE:IBM) and whoever else jumps on the momentum.

All software is Internet software in the future, which began exactly 5 minutes ago. It's the freeway of data. Imagine driving down Route 66 only to find that it went nowhere and was connected to no other freeways. That's the old world PC model, the one you and Paul Allen created in the 1970s when Radio Shack was a Friday night hangout spot.

But like the Interstate Highway system, the PC is now part of the interconnected world of ideaflow. You know this, we know this, so what gives that DOJ doesn't?

Of course what DOJ doesn't realize is that having a desktop presence doesn't guarantee critical mass or even cell splitting. MSN's icon has been glued to the desktop as part of Windows 95 for years now and MSN is nowhere near the number of users of AOL (NYSE:AOL).

The big fear was that since the MSN icon would be at eyeball length that it would gain instant status and be the #1 online service out of the gate. Didn't happen. The icon's still there. AOL's still #1 and Yahoo, Excite (NASDAQ:XCIT), Lycos (NASDAQ:LCOS), and Infoseek (NASDAQ:SEEK) all come on strong with a slew of Web networks to overtake that position unless AOL does something (that's a topic for next Friday's Letter to CEO, AOL's Steve Case). All have become Wall Street darlings.

Yes, on another topic, we saw the acquisition news about HotMail. Price not disclosed. Bloomberg reported it at $30 million, which led us to believe you had acquired ColdMail--many Internet ideas are worth more than $30 million scribbled on the back of a Burger King napkin.

The Wall Street Journal later reported $400 million. We estimated about $150 million although Microsoft is known to pay a premium for the good stuff, it helps speed the process up we suspect. The $400 million amount could be on target since that's about what Microsoft paid for WebTV.

The big hole in the Internet space for Microsoft looks like a "meta" site that people can go to and get all the content and software they're after. We've perused Microsoft.com and it's a huge banana. Lots of great stuff but slippery.

There's no organized way of finding content through the front door at MSFT.com. Searching. Exploring. An Excite (which I heard you wanted to acquire way back before it went public) or Lycos or Infoseek, any could be a convenient portal to the new MSN.com.

Content is the new operating system. Hyperlinks are the code, and navigation is the guide (menus). And 100 million people on the planet now use the Internet and are effectively "programmers" of this new OS. Wonder if DOJ knows?