PC makers are posting "for rent" signs on the Windows XP desktop, taking advantage of a recent move by Microsoft Corp. to loosen its grip on what icons and advertisements appear on the startup screen of a new Windows PC. However, industry watchers say too much clutter could send consumers packing.
Computer makers now have control over the screen real estate on new computers running the Windows operating system, a power claimed by Microsoft until July when the software maker offered PC makers more flexibility over such decisions, under pressure from its ongoing antitrust battle with the U.S. government.
AOL Time Warner Inc. was the first to announce that it would take advantage of Microsoft's new flexibility agreement. It brokered a deal with Compaq Computer Corp. last week, and more deals are expected to follow.
"There certainly has been a flood of companies that have begun to approach us," said Compaq spokesman Rick Frizzell. Other computer makers, from Gateway Inc. to budget PC maker eMachines Inc., said Wednesday they too have been approached by companies in search of desktop space but remain cautious about which offers to pursue.
PC makers say they are worried that adding too many icons, links to Internet services or advertisements runs the risk of alienating customers. Many agree with Microsoft that consumers would rather have a so-called "clean desktop," where icons and folders would remain in the Windows start menu rather than on the startup screen.
"It's got to be something that's not a clutter," Frizzell said. "If there's too much on the desktop, then you may lose the value of what you were after in the first place."
A spokeswoman for eMachines in Irvine, California, also said the company is trying to keep a clean desktop. EMachines currently posts an icon on the desktop linking consumers to a promotional offer for AOL's Internet services. AOL Time Warner is an investor in eMachines and has a long-standing agreement with the company.
Not so clean desktop
Since the early test releases of Windows XP, Microsoft has said it would prefer the operating system to ship with a clean desktop. It has recommended that to computer makers, though it gave up its claim to impose the rule when it loosened up its contract agreements, reacting to the recent U.S. District Court of Appeals decision to uphold a lower court ruling that Microsoft was hurting competition with its limiting agreements with computer manufacturers.
Microsoft still expects to ship shrink-wrapped versions of Windows XP with a clean desktop, the company has said.
"We totally agree with Microsoft on the clean desktop and we've gotten similar feedback from our customers," said Lisa Emard, a Gateway Inc. spokeswoman. She noted the company has been in negotiations with new and current partners about renting space on the desktop but did not plan on announcing any deals soon. "We are going to be cognizant about having too much."
One PC user, responding to Compaq's latest deal with AOL Time Warner, said he would be turned off from buying a PC from a manufacturer that bogged down the desktop with icons and advertisement. "I personally do not want to see an offer for AOL flashing next to my word processor," the user wrote in an e-mail to the IDG News Service. "I don't believe AOL is going to be passed by because it doesn't have a permanent presence on my desktop."
Similar consumer backlash is expected if the desktop turns into a billboard for Internet offers, PC makers say. "We certainly want to give our customers a good experience, and we do believe in a clean desktop," Frizzell said. "But we also want to allow ourselves to have additional revenue sources."
With PC sales slipping and the waning economy digging into both the consumer and corporate spending on computers, a new revenue stream is a welcome addition for manufacturers such as Compaq and Dell Computer Corp. PC research firms as well as technology companies such as Microsoft have predicted PC sales to grow at a slower rate than usual this year.
Global PC shipments in the second quarter of 2001 plummeted from the same quarter last year, the first year-over-year quarterly decline ever, according to research firm International Data Corp. Global shipments for the entire year are now expected to show only about 5.8 percent growth compared to the year earlier, the research firm said. In the U.S. sales are expected to drop more than 17 percent this year, compared to the year earlier.
"Certainly these deals are great for PC manufacturers because they'll be able to make some money they weren't expecting," said Michael Silver, an analyst with Gartner Inc.
Space for rent
Besides AOL Time Warner, offers to rent space are coming from all corners of the industry. "Some of the companies are those that provide portable search engines, instant messaging, back-up services like digital photography and music," Compaq's Frizzell said. "Those are just some of the initial ones."
The most likely companies to end up on the startup screen of a new PC are Internet service providers and others that offer services under a subscription model, analysts predict.
Meanwhile, Microsoft has remained on the sidelines as Compaq and others announce new interest in brokering deals with its competitors. Compaq said that it had received a bid from Microsoft weeks back to get its MSN Internet service access icon on the desktop -- which included a financial arrangement -- but turned it down because its deal with AOL was already in place.
Microsoft has brought to light a clause in its flexibility agreement that says PC makers must include the MSN access icon if they make deals with other ISPs. Beyond that, it has handed over control of the decision to its hardware partners.
"They're just trying to get a product out the door," Silver said.
It hasn't been as easy as Microsoft might have expected. The company and its new operating system have been the target of continued criticism from competitors, the government and industry trade groups. Microsoft also has a lot of money tied up in the development and marketing of Windows XP, and needs the Oct. 25 launch to go off without a hitch. Microsoft said it expects to spend more than US$200 million marketing the operating system worldwide in the first four months, Microsoft President and Chief Operating Officer Rick Belluzzo said last week.
"It's almost like they had no choice," Silver said, of giving PC makers flexibility. "The more they held their ground the more likely they'd have some problems, and they don't want to have to back out of their plans for the XP launch."