INTERACTIVE;WHY AOL ANTAGONIZES MSN; CASE CHEERS BREAKUP OF MICROSOFT-INTUIT DEAL BUT ONLINE SERVICES' BATTLE IS FAR FROM OVER

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A pack of challengers is lined up at the starting gate in the online services field, but Steve Case is doing his best to make it a two-horse race.

The high-profile chairman-CEO of America Online is positioning his ser-vice as an alternative for businesses and consumers looking to escape the clutches of Microsoft Corp. and its high-powered chairman, Bill Gates.

It's an aggressive strategy, but one fueled in part by fear.

"If you're the prettiest girl at the prom and someone better-looking and richer and more powerful walks in, of course you're going to react," said Bishop Cheen, an analyst with Paul Kagan Associates, Carmel, Calif. "From the moment everyone knew Windows 95 would have an embedded online service, AOL has been working double-time to expand its subscriber base, its content alliances and its verve."

The Microsoft Network, or MSN, won't even formally enter the online fray for another three months. The service is, however, already making its presence known; earlier this month, it lured programming power NBC away from AOL with a lucrative contract.

"AOL has a lot of momentum in the market. We're building on that and trying to make sure there is a viable alternative to Microsoft," Mr. Case said last week. AOL is the largest U.S. service with more than 2.5 million subscribers.

Microsoft "is trying to take advantage of a monopoly position to try to enter new markets, and that's not appropriate," Mr. Case added, a reference to Microsoft's plan to leverage the dominant position of its Windows operating system to distribute its online service to tens of millions of potential users.

AOL is asking direct-marketing agencies and other marketing specialists to help it craft a strategy to quadruple its subscriber base in the next few years.

And three separate announcements last week underscored Mr. Case's fixation on Microsoft.

First, AOL announced a series of alliances with major CD-ROM publishers to provide one-button access to AOL from their discs. The strategy is similar to Microsoft's plan to offer one-button access to MSN from Windows 95. AOL's partners include Broderbund Software, Hachette-Filipacchi Magazines, Compton's NewMedia, Virgin Interactive and Novell.

AOL also agreed to acquire multimedia publishers Medior, San Mateo, Calif., and WAIS, San Francisco, to beef up its Internet services. Medior will be acquired for about $30 million in stock; WAIS for about $15 million in stock.

Finally, Mr. Case released a statement applauding Microsoft's decision to withdraw its planned $2 billion acquisition of financial software marketer Intuit as "a victory for consumers" and "Independence Day" for Intuit. He called on the Justice Department-whose antitrust concerns had delayed the Intuit deal-to "block Microsoft from using Windows as a marketing platform for Microsoft's own products and services, such as the Microsoft Network."

Microsoft's ultimate success in delivering a proprietary online service is far from guaranteed, but Mr. Cheen, for one, believes Mr. Case's concerns are justified.

Analysts expect Microsoft to sell 20 million to 30 million copies of Windows 95 in the first year, all with built-in MSN access.

"You've gotta believe the minute Microsoft turns on the switch, there's a million, million-and-a-half subscribers," Mr. Cheen said.

That's not to say AOL can afford to ignore a host of other competitors including Prodigy, CompuServe, AT&T and MCI Communications Corp. Mr. Cheen predicts there will soon be a consolidation in the online industry and said there is a high likelihood someone will mount a takeover attempt for AOL.

AOL is far from the only player hoping to be a burr in Mr. Gates' saddle. Microsoft's decision to drop the Intuit acquisition actually puts Intuit in a similar position.

Quicken already claims about 80% of the personal finance software market and Intuit may benefit by positioning itself to banks and other potential partners as an alternative to Microsoft and its Money software product. A third player in the field, Managing Your Money, was acquired from H&R Block earlier this month by Nationsbank and BankAmerica for $35 million.

Microsoft Money will tie in to the Microsoft Network, but Microsoft is also interested in putting Quicken on its online service, which meshes with MSN's plan to encourage competing entries in all categories.

"Intuit's a powerful brand with seven million customers. I'd love to have them on Microsoft Network," said William Miller, MSN director of marketing.

Mr. Case said AOL wants to work with Intuit to develop electronic commerce services, but added that he is not exploring a merger or acquisition. Besides, Intuit Chairman Scott Cook said he's no longer looking to sell.

Bradley Johnson contributed to this story.

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