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  • Ian Ritchie : Business AM

Window of opportunity opens for Microsoft growth

The launch of the latest, non-DOS, operating system is very significant for Bill Gates

TODAY, AT SPLASHY THEATRICAL events in New York and London, Microsoft will launch the latest version of its Windows operating system, Windows XP. Apparently, the XP stands for “experience”.

A few years ago, I attended such a launch of a Windows release in New York. Bill Gates is not a natural performer, so to make up for his lack of charisma these events tend to have spectacular staging, guest stars, and upbeat video sequences. The theme tune today will be Madonna’s Ray of Light, Bill Gates will be in New York as usual, and Steve Ballmer, the company’s chief executive, will host a presentation in London.

Microsoft is playing down the importance of this release, but it is actually a very significant one. In the year that the PC celebrates its 20th birthday, Microsoft has finally eliminated the last remnants of MS-DOS, its original operating system. Bits of MS-DOS have stuck around ever since, to ensure backwards compatibility, but the effect has been an operating system which has suffered from poor reliability. Reviewers have reported with mild astonishment that this version of Windows hardly ever crashes.

The reason Microsoft may be playing down this release is because it doesn’t want to draw attention to the fact that its core offerings – operating systems and office applications – are now ex-growth businesses. Pretty much everybody already has copies of these products, so the market these days is limited to replacement and upgrade purchases, and they are now so sophisticated and feature-ridden that the need to upgrade is minimal.

In their latest quarterly figures released last week, Microsoft predicted very little growth for the rest of this year, as well as taking the opportunity of the general market depression to take a $1.24bn (£870m) write-off on their investment portfolio, mostly in European telecoms and cable TV companies.

Still, one possible source of revenue growth from Windows XP might well result from a feature that users definitely didn’t request. Once it has been installed, Windows XP registers itself intimately with your computer and, via the Internet, logs the details back to Microsoft HQ in Redmond, Washington. It will then not be possible to register the same copy of XP on another machine.

Microsoft claims that it has suffered for years from individuals copying the same software on to several different computers in the office, on laptops, and at home, and so these rather heavy handed measures are justified. Some users might disagree when they upgrade their computers and find that Windows stops working, because it no longer recognises it as the same machine.

As is also traditional, this version of Windows is controversial what what is included, and what is not. Java, for example.

Microsoft has long been nervous of the widespread adoption of Java programs, which are intended to work across the internet independently of the operating system used. As “independence” is not one of Microsoft’s favourite words, Java has been banished from this release. Microsoft will soon launch VisualStudio.NET, its proprietary architecture for internet web services development.

What is included, however, is new software to handle digital photographs, much to the annoyance of Kodak, and instant messaging features, which has irritated AOL Time Warner.

These release-by-release extensions of the standard features of the operating system have been at the heart of the anti-trust investigations by the US Government into Microsoft’s behaviour. Its conclusion was that Microsoft had illegally used its monopoly position to eliminate competition.

It may seem strange, then, that Microsoft appears to be continuing, undeterred, with what many regard as its fiercely anti-competitive practices. Actually, much of the momentum seems to have gone out of the US anti-trust proceedings since George Bush replaced Bill Clinton. Microsoft has improved its lobbying; pointing out that it is responsible for a huge proportion of the foreign revenues earned by the US.

So, it may be left to the EU to discipline Microsoft. Mario Monti, the competition commissioner, has ordered an inquiry into Windows XP and probably means business. After all, it was the EU, not the US government, which killed GE Honeywell merger on anti-competition grounds.

One drawback though. The maximum fine that the EU can levy is 10% of sales revenue. With $35 billion in the bank, Microsoft will probably treat the fine ($300 million or so) as an unwelcome extra tax and just pay up.

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