(FORTUNE Magazine) – Item No. 1: AOL sues Microsoft in January, seeking potentially billions of dollars in damages for harm caused to the Netscape Internet browser by Microsoft's anticompetitive practices. The real goal: forcing Microsoft to detach its Internet Explorer browser from the Windows operating system.

Item No. 2: About the same time, the Washington Post reports that AOL is in discussions to buy Red Hat, a company with expertise in Linux, the most credible challenger to the Windows monopoly. Linux would give AOL a way to circumvent Microsoft on new computing and communications devices. (AOL and Red Hat deny the story.)

Item No. 3: Also in January, AOL quietly launches Screen Name Service (a.k.a. Magic Carpet), a user-authentication service that, like Microsoft's Passport, stores personal consumer data for the ostensible purpose of making online browsing and transactions easier. Oh, by the way, both amass valuable information about the finances of their Internet users, not to mention extensive detail on shopping and buying habits.

Are these merely more skirmishes between two of the most powerful Internet companies on the planet? Sure, in the same way that Bull Run was a skirmish. At stake is nothing less than dominance of communications, online transactions, and content distribution in the Internet Age. The winner will be able to tap into revenue sources that analysts say will beggar what Microsoft and AOL Time Warner (parent of FORTUNE's publisher) pull in today.

Head-to-head battles are everywhere: MSN's rapidly growing online service vs. AOL's; Internet Explorer vs. Netscape; MSN Instant Messenger vs. AOL Instant Messenger and ICQ; Microsoft Media Player vs. AOL's alliance with RealNetworks; and so on. Is there anyplace the two behemoths can coexist? "I don't see AOL getting into enterprise software, and I don't see Microsoft publishing a sports magazine with a swimsuit issue," says Gary Arlen, president of Arlen Communications in Bethesda, Md.

In this epic duel, watch two key areas: instant messaging and streaming media (through its Trojan horse, the browser).

Why? Instant messaging is more than just a way for teenagers to chat: It's a development platform that, as network bandwidth increases, will carry e-mail, real-time news alerts, stock quotes, shopping services, even voice and video mail, to any wired or wireless device. AOL guards its crown jewel ferociously: Its Instant Messenger is still closed to outsiders, despite promises that it would be opened up when AOL merged with Time Warner.

As for the browser war, remember when Microsoft gave AOL prime access to the Windows startup screen in return for AOL's making Microsoft's Internet Explorer the browser of choice for its 30 million-plus users? That agreement broke down last summer, according to insiders, in part because of a fight over whose software would control AOL's streaming media and thus its lifeblood--music, movies, television. "When Microsoft and AOL did not renew the deal, the likelihood of collision went up by 100%," says Mark R. Anderson, president of Technology Alliance Partners, a consultancy in Friday Harbor, Wash. "Until that moment, it seemed like they were legitimately on separate tracks."

Is the world big enough to accommodate two titans that both want to be gatekeepers?

AOL Time Warner may be inclined to think so, because it operates in the content world--magazines, movies, television--where many competitors can thrive as long as they control their own distribution. But as a technology company, Microsoft knows that consumers want standards--whether for operating systems, instant messages, or streaming music--and that the owner of those standards can amass wealth and power.

If technology decides the digital-convergence war, Microsoft has the edge. If it turns on marketing and content, odds favor AOL Time Warner. One thing is clear: When massive tectonic plates collide, the landscape is altered forever.