Microsoft Concessions Leave Much Unsaid

Microsofts surprise concessions on its browser and desktop real estate should finally give PC makers more control over how they package their products, but they do nothing to address the most pressing concerns about how Microsoft intends to leverage its market dominance on new technologies, critics and analysts said.

Fearing that new legal challenges might block the fall release of its Windows XP operating system, Microsoft announced last week that PC makers will be able to add and remove Start menu entries and desktop icons from its upcoming XP OS; they will also be able to retroactively alter the desktops of Windows 2000, Millennium Edition and 98. In addition, the company said it will add its Internet Explorer browser to XPs add/remove program.

Microsoft had initially insisted that XP would be "clean," prohibiting the major PC makers — including Compaq Computer, Dell Computer and Gateway — from adding icons for applications or services of their choosing. Those icons would be the first that users see when they turn on their new PCs; that desktop real estate has always been valuable to service and software providers that want to win the attention of new users.

"Since the OEMs [original equipment manufacturers] control the desktop, they could now put AOLs AIM [Instant Messenger], if they want, on it instead of MSN Messenger," said Rob Enderle of Giga Information Group. "That means AOL can buy their way into a space they had no access to — not only do it for XP, but for previous versions of Windows."

Although the concession is significant for a company that bludgeoned Netscape Communications to death in part via control of desktop icons, the real impact wont be known until contracts with OEMs are written and divulged.

Some Skeptical

Competitors said that Microsofts unwillingness to address how it will treat upcoming applications is a clear sign that the Redmond company has no intention of giving up the ability to meld advantageous programs with its OS in a move to dominate new industry sectors.

"This is not a step forward," said John Buckley, an AOL Time Warner executive. "They are going to bolt [Windows] Media Player or whatever else they want into the OS."

Indeed, Microsoft spokesman Jim Cullinan said Internet Explorer is the only application currently slated to be added to XPs add/remove program, and others — such as Passport, Windows Media Player and its instant messaging software — "have never been part of this case."

Cullinan also confirmed that the announcement was Microsofts way of assuring that its legal foes cant use the appeals court ruling — which two weeks ago declared the company a predatory monopolist — to block the release of XP this fall. By ceding control of the desktop icons to OEMs, a new spate of suits and injunctions will likely be avoided. "We thought there were violations we should address now so that XP can ship on time," he said.

Legal experts said that the OEM announcement will do little to positively affect settlement talks with the Department of Justice and state governments, since it deals with only a small part of Micro-softs antitrust infringements.

Still, it was enough to sway at least one legal foe. On Thursday, July 12, New Mexico Attorney General Patricia Madrid announced that her state had reached a settlement with Microsoft in which the company would cover $98,000 in legal bills, while still leaving the state included in any future penalties or remedies arising from the case.

"I thought it was critically important to pursue this to establish the unlawful anticompetitive conduct of Microsoft," Madrid said. "I do not believe, however, New Mexico has a vested interest in crafting the appropriate remedies against Microsoft."

But Iowa Attorney General Tom Miller, a representative of the 18 states that remain part of the antitrust suit, was unimpressed. "This proposal falls far short of the remedies or relief we think are necessary," Miller said.

The DOJ had no comment on the OEM announcement.

According to legal experts, the question facing the Bush administration is whether the settlement will include demands that Microsoft change its application strategy moving forward.

"The purpose of a remedy is not just to stop the repetition of old behavior — it has to pry open the market to competition," said Glenn Manishin, an antitrust attorney at Patton Boggs.