New OS extends Microsoft's reach

Thursday marks a pivotal point in the history of Microsoft Corp., when the world's largest software maker officially launches Windows XP at a string of high-profile events around the world and Windows expands its reach from the desktop to the Internet.

"Windows XP . . . represents a very big milestone for us," said Microsoft Chairman and Chief Software Architect Bill Gates, speaking Tuesday at Microsoft's Professional Developers Conference in Los Angeles "This is a big advance for Windows."

However, the operating system release is just the opposite of an advance in the opinion of legal and industry critics who have continually argued that Microsoft is carrying on its long-criticized practice of bundling applications with the operating system, which dates back to when the company first added its Internet Explorer Web browser to the operating system. It is that same argument that has led to Microsoft's antitrust battle with the U.S. government.

In addition to increased stability in Windows XP due to its new roots in the Windows NT kernel, the operating system is packed with added features and applications -- from communication tools to entertainment players -- that make the operating system an all-in-one tool for many users.

"The broad set of features is pretty long, but ease of use, reliability, performance, the XML (Extensible Markup Language) things built in -- those are probably the primary elements," Gates said. "There's a lot that's built in," he said.

This concept of "built-in" features is what shows just how far Microsoft has advanced its operating system with the release of Windows XP. Basic applications, from instant messaging to digital photography, come standard in the new operating system. Windows XP will also lay the foundations for how consumers will consume Web services, a technology in which Microsoft is investing heavily with its .Net initiative.

It is a strategy that Microsoft touts as consumer-friendly but critics call anti-competitive. For consumers, the added features offer important applications without the need for additional software installations. For companies that make competing applications in those industries, however, it means working harder.

From the Windows Media Player to the Remote Desktop feature that allows a user to access his or her system over the Internet from a remote PC, Microsoft has built in several applications that traditionally have been provided by third-party software makers.

Carl Banzhof, chief technology officer of Citadel Technology Inc., a Dallas-based provider of security and filtering software for Windows operating systems, has seen this strategy unfold in his company's industry. One of Citadel's main products, called SecurePC, manages the configuration of multiple computers and user profiles. The application can set policies for what settings and software a user can access. In a networked environment, a systems administrator can manage all this from a central location.

However, Microsoft has built a similar application into Windows XP Professional to provide administrators a policy-driven mechanism to identify software running on networked machines and control a user's ability to run applications on those machines. Although analysts say that is not as advanced as Citadel's product, they expect Microsoft to continue improving its add-on features, eventually making some third-party products obsolete.

Banzhof disagreed.

"From our standpoint, Microsoft can't be everything to everybody," Banzhof said. "There's still plenty of opportunity for us."

Microsoft says its new operating system will work with 90 percent of the 1,500 applications that work on the Windows 2000 platform. It has spent $150 million to make sure its software is compatible with a wide variety of hardware devices, about 12,000 in total.

Bob Crowley, chief executive of Bowstreet Inc., which builds platforms and tools for deploying Web services, agreed with Banzhof that Microsoft continues to make room for competitors despite its history of bundling applications and technology with Windows. Bowstreet develops Web services that can run on .Net as well as the competing J2EE (Java 2 Enterprise Edition) server software, and will only gain from Windows XP's tight integration with .Net Web services. He argued that the wide range of needs among corporate customers will always keep competition strong in the corporate software market.

"It will be more difficult on the consumer's side for other companies that aren't closely affiliated with Microsoft to compete, but that's not what (Microsoft) says, it's just possible it may end up that way," Crowley said. "You can say a lot of things about their practices, but in the end there's a fairly large group of consumers out there that like (Microsoft's) stuff. I think other software companies are going to have to learn how to compete with that."

Two competitors that have been most vocal in their efforts to compete include Yahoo Inc. and AOL Time Warner Inc., whose Internet portals and Web services go head on with Microsoft's emerging Internet strategy. The most controversial features built into the new operating system are Microsoft's own Web software applications: Windows Messenger, the MSN Explorer browser and portal access software, and the Windows Media Player.

"What I think you're seeing is Microsoft integrating the operating environment more tightly with the Web," said Al Gillen, an operating systems analyst with International Data Corp. (IDC). "Windows XP basically assumes that when it is turned on it has an Internet connection, and because of that assumption, Microsoft is trying to build services or get partners to build services (on the Internet) that can be used within XP."

Initially, many of those services will be from Microsoft, and they will center around the company's single-sign-on service, Passport. That poses a continuing threat to AOL Time Warner and Yahoo, who are competing for customers with similar applications but don't have the same reach as Microsoft does with its dominance in the operating system market.

From Passport, Microsoft can bring customers into its environment, analysts note.

"If you want to use Windows Messenger, or the real-time communication features in Windows XP, you have no choice, you've got to have a Passport account," Gillen said. "Microsoft has inserted itself in the loop."

Users also need a Passport account to use MSN Explorer and any of the new Web services that the company plans to launch through MSN. Called .Net My Services, a moniker given to the technology formerly known as Hailstorm, the set of basic Web services will rely heavily on a user having a Passport account.

As Microsoft uses its ties between software products to bring customers into its proprietary environment, it continues the long-fought industry battle over just how much Microsoft should control through the desktop.

"When you buy a new PC with Windows XP, it's probably going to be a very good experience for most consumers with the stuff that comes bundled," said Michael Silver, an operating systems analyst with Gartner Inc. Any additional software or service, however, is another story, he said.

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