(FORTUNE Magazine) – Once I built a tower up to the sun/Brick and rivet and lime./Once I built a tower,/Now it's done./Brother, can you spare a dime?

--sung by Bing Crosby; lyrics by E.Y. Harburg

One reality exposed by the Justice Department's recent complaint against Microsoft is that the software maker and PC manufacturers disagree over which controls the startup screen on your PC. Indeed, Gateway and Packard Bell are planning to modify that opening screen. Contrary to what you may think, this has nothing to do with branding, with a desire to get their name, rather than Microsoft's, in your face. Instead, it has everything to do with who controls a key point on the Internet distribution channel.

Consider this classic E-commerce example: Working from my PC, I log on to the Web to order flowers from my favorite site. Who is responsible for getting me to the flower shop--and therefore potentially entitled to a cut of the sale? Is it the PC manufacturer, the maker of the operating system (Microsoft), the company that created the browser I use (Netscape), my Internet service provider (AT&T), or the search site that first suggested the shop (Yahoo)? Each can make a reasonable claim, and since any cut they get of the sale represents revenue with a 100% gross margin, it's not surprising that they are making such claims more and more loudly these days.

Distribution is a powerful force in media-related industries. Sometimes it is hard to know what is worth more--the content or the pipes through which it flows. It's taken time for companies to understand the leverage they may have as masters of various chokepoints along the Net, but now almost every leading player is asking, How can I collect fees for my participation in the network?

We're currently in the very early stages of a free-for-all in which a wide range of companies are out to milk the Net. It's too early to tell which will win. For now, all that investors and observers can do is understand where the key players fit along the chain and the strengths and weaknesses that come with those positions.

The distribution chain stretches from the consumer at one end to the Website or service at the other. Here's how it breaks down.

Device manufacturers. Nobody's closer to the consumer than PC makers. They control the first point of interaction with the Net. If they wrest more control of startup screens from Microsoft, their power could grow. They want to control the channels, bookmarks, and Web pointers a customer sees when he sets up his PC so that they can demand payment for that placement. And if the Net becomes widely accessed via televisions, makers of TVs and set-top boxes may also soon jockey for the same kind of control.

Operating-system vendors. The next step in the chain is the operating system. Microsoft controls 90%-plus of this market and is doing its best to use its position to claim a cut of the Internet money flow.

Early initiatives include a recently disclosed program in which Internet service providers (ISPs) pay for choice placement inside the Windows program that runs when you first set up Internet access. Microsoft also receives a bounty for each customer that signs on with one of these ISPs. Content providers have entered into deals with Microsoft to ensure that they will be included as an "active channel" on the Windows 98 desktop.

Access-software vendors. The obvious leaders are browser makers Microsoft and Netscape, and AOL, whose desktop software gets millions of Americans onto the Net. The power here is quite obvious, since embedding the browser with links to favored Websites clearly influences traffic flow. Both Microsoft and Netscape negotiate with content providers for premier placement within bookmark lists or channels.

Internet service providers. ISPs control a part of the channel that other players do not find attractive--the capital-intensive infrastructure. One might assume that this constitutes a barrier to entry that guarantees influence and power. But ISPs have not established control. There are three reasons that might change.

First, many ISPs are entering marketing arrangements with search sites to leverage their physical distribution. MCI and Yahoo, for instance, have a deal in which MCI encourages its Internet customers to sign on to the MyYahoo personalized search page. Second, the ISP market is consolidating, which will give larger players greater influence. Last, ISPs may someday sell Websites the right to priority queuing. That would mean that bits headed their way would get preference at congested routers along the Net, resulting in a better experience for the customer.

Hosts. Many popular Websites pay hosting companies to help manage and run their Internet servers, outsourcing the techiest side of their operation to ensure performance, scalability, and 24x7 availability. If it becomes clear that the leading hosts offer higher quality than what Websites can get on their own, the hosts may gain strategic strength in the distribution channel. An interesting player is Broadcast.com in Dallas, which is working to establish its hosting facilities as the best delivery point on the Internet for streaming media (audio and video delivered on the fly).

Search sites. The leading search sites--which now call themselves portals--have perhaps gone furthest in exploiting their channel position. Yahoo, Excite, and AOL have signed multimillion-dollar deals with Websites that want to increase the likelihood of being found by consumers. NBC has just bought a controlling stake in Snap, CNET's fledgling search site, for as much as $38 million. Microsoft is expected to enter this market in September with a site called Start.com. Compaq is even reportedly developing a search button for the computer keyboard.

Positions along the distribution chain are not necessarily fixed. Search sites have partnered with ISPs, and ISPs with PC makers. Gateway 2000 has set up its own ISP and will probably offer a search icon on its startup screen. Netscape has decided to mesh its browser and its search site, giving part of the company a look and feel similar to AOL. Microsoft is a player at several chokepoints, especially as it merges its browser and operating system.

These evolving relationships are already changing the way money flows along the chain. Historically, ISPs paid to have PC companies bundle dial-up software with their computers. With Windows 98, Microsoft wants to aggregate this service into the operating system, removing a potential revenue stream from the margin-hungry PC players. Gateway and Packard Bell are resisting that move and are making their own deals with ISPs seeking strategic positions on their desktops. They're trying to undo the central irony of today's distribution system: In most businesses the closer you get to the customer, the better off you are, but on the Net, with the exception of Microsoft, the companies furthest from the consumer are extracting the most value. The portals are the ones that have made the deals producing real revenue. Now everyone wants a piece of the action.

As the Internet evolves, controlling these chokepoints could become ever more lucrative. Consider the early era of cable TV, when TCI leveraged its position as a cable distributor to become a leading player in content. The number of channels on the network was limited; by trading air time for equity, TCI built media interests that now make up a company with a $15 billion market capitalization--Liberty Media. And just think: That was built on a network that delivered nothing but content. The Internet of tomorrow will not only deliver content but also control communications, applications, and commerce. The tolls collected for delivering all that could be hefty indeed.

J. WILLIAM GURLEY is a partner with Hummer Winblad, a venture capital firm. Of the companies mentioned, the firm is an investor only in Frontier. An expanded version of Above the Crowd is at www.news.com; to subscribe to the E-mail distribution list, E-mail listserv@dispatch.cnet.com with the following in the message body: subscribe atc-dispatch. Please send feedback to atc@humwin.com