Why Microsoft won't buy BT

Before anybody else tells you this ... Microsoft will not buy British Telecom. Period. No need for further discussion.

Well, maybe just a little discussion.

With Microsoft buying its way into every other market, the rumor mill has started saying that Microsoft wants to extend its control into telephony - and that it is talking to British Telecom about a possible takeover. You remember BT – they were the ones WorldCom outbid for MCI.

Yes, Microsoft could pull off such a deal - it'd be chump change for it (read: Bill). In fact, Bill Gates could probably convince the world it would be a good thing. Speaking of which, did anybody else get a laugh out of the recent CNN/Time magazine poll that claimed Bill Gates' popularity was growing? This poll revealed that 46% of all Americans feel that Microsoft's dominant role in the software industry is good for us. Further, 46% (could these be the same rocket scientists as the previous poll?) of all Americans feel that having Microsoft as the dominant company for Internet services would be good for consumers. It should be pointed out that only 42% of all Americans have a favorable view of Bill himself, although this is up from 32% back in 1995.

What these polls really demonstrate is that the average American has no idea what the Internet really is, or that they still think of a board game when they hear the word "Monopoly". Now these polls do have a margin of error of plus or minus points, which means that a scary 50% of the American public could feel this way (and that is slightly higher than the percentage who voted for Bill Clinton).

Of course, not all is rosy for Bill (Gates or Clinton). True, Microsoft has agreed to stop hobbling their own Windows product by ripping out Internet Explorer (its approach was similar to trying to pull a loose tooth from under one's chin), and instead will allow a kinder, gentler removal of the IE icon. But don't forget it still faces an antitrust suit by the government.

All this doesn't mean Microsoft won't be easing its way into what's considered traditional telephony. Take, for example, the news that Microsoft, Intel and Compaq are forming a consortium of sorts to kick-start a mass-market version of digital subscriber line, by developing a common spec and chips for low-cost DSL modems. According to news reports last week, the three had signed up every RBOC, save Bell Atlantic (and even it didn't rule out participation).

Does this move mean that Microsoft will buy Intel or Compaq? Probably not. What this does mean is that Microsoft is serious about speeding up access to its online content, something I've noted many times before. Microsoft correctly believes that the way to keep growing is to dominate the market for what people want. And people don't really want browsers, or spreadsheets, or even cable TV, in general. What they really want is MTV, that is, content. And Microsoft is trying to end up the world's biggest content provider.

But first, you need a distribution channel for that content (say, the Internet). Then you need the mechanism for people to view the content (say, PCs or WebTV). But you don't ever want to own these parts of the equation – they have no leverage! Content can be leveraged, hardware can’t. Just like the TV networks realized, you need to own the distribution channel only until the demand for the content takes off.

And this is why Microsoft won't ever buy BT (or any other carrier). They simply don't need BT. What they do need is for somebody like BT to help them deploy even more access tools, and open up more distribution channels for their software products, which in turn will let them sell more content. By adding Microsoft elements to the telephony side of the market, Microsoft strengthens its position, something from which we all (or at least 46% of us) would benefit.