AOL takes aim at Microsoft in `free-PC' talks

AMERICA ONLINE, the world's largest Internet access company, is rumoured to be on the verge of striking a deal that could lead to PCs being given away to Internet users.

In a move aimed at attacking Microsoft, the company is reported to be in talks with Microworkz, which makes PCs that sell for less than $200 (pounds 125). Microworkz' new iToaster uses no Microsoft programmes, and relies instead on Linux, the fast-growing open-access software. AOL is locked in a battle with Microsoft over Internet browsers (it owns the rival Netscape) and over Internet access. Microsoft, through deals with cable television and telephone companies, aims to shift users to its services and products.

"We are talking to AOL about substantial market opportunities within the Microworkz line, including a possible AOL-branded box," said Rick Latman, president and CEO of Microworkz. In a sign of how incestuous the Internet, computer and media worlds have become, the news was first reported by MSNBC - Microsoft's venture with television network NBC.

Microsoft is under fire in Washington for allegedly using its monopoly power in the software world to put pressure on AOL, Netscape and computer manufacturers. The antitrust case brought by the US Department of Justice and several states ended the witness stage on Thursday, with Microsoft seen by analysts as the loser on points. But it will be months before the judge returns to give judgment.

Microsoft lawyers met with representatives of the Justice Department three weeks ago in a renewed effort to strike a deal over the case, according to the Wall Street Journal. It was the first attempt since March to end the affair on mutually agreeable terms, and more will probably follow. But while the case has been under way, the market for browsers and Internet services has changed out of recognition.

Striking a joint venture with Microworkz - or even buying it - would extend AOL's campaign of "AOL Everywhere". It has also done deals with satellite broadcasters and equipment manufactures, bought Netscape and formed an alliance with Sun Microsystems, the rival software company. In the past week alone it has made a $1.5bn investment in Hughes Electronics, which makes satellite television equipment, and struck a deal with 3Com, which makes the popular Palm Pilot personal organiser, to put its e-mail and Internet products on the devices.