Insights hed: They're ba-a-ack! dek: actually, Microsoft never stopped monopolizing. by James Mathewson

When Judge Thomas Penfield Jackson ruled to break up and otherwise punish Microsoft last year, most people thought the company would change its ways as a result. That was the point of the antitrust suit, after all. Many analysts pointed out that, by appealing the ruling, Microsoft could delay the punishment, but it would not be able to skirt it entirely. Wrong. On the business side, Microsoft has ignored antitrust concerns. Its development has gone on unabated, and it is repeating the same tactics it used to gain and use its monopoly to leverage other markets.

We got the first taste of this with Windows Me. It's a lot like Windows 98 SE, with a few frills and one noteworthy change: It is the first consumer OS with a totally integrated browser. The default settings replace the trusty and intuitive Windows Explorer with an Internet Explorer-based file management system. I was one of the first to load Me on a test system, and it took me a while to change all the defaults and make it behave like Windows 98 SE in all but its most characteristic feature-instability. That it had out of the box.

Released just prior to Jackson's ruling, the OS appears to be Exhibit A for what the ruling intended to prevent-leveraging the OS monopoly through bundling to control markets for other software. This time it did not just bundle the browser, but also the streaming media player and many other utilities. While some small-systems integrators resisted the new OS, eventually Windows 98 SE was retired and they were forced to package Me into their systems.

Me is just the foretaste of what's to come. Combined with .NET, Windows XP is the next example of how Microsoft will turn its desktop and office monopoly into an Internet monopoly. As I said in a CU.com column in June, if what the industry and its users endured in the name of Windows Me was Iwo Jima, the coming onslaught from Microsoft is Hiroshima.

Windows XP takes the bundling strategy-what Microsoft calls integration-to explosive new heights. XP will have everything related to Internet use bundled in by default-not just the means with which to use the Internet (browser, streaming media player, etc.), but also the end itself (MSN and Microsoft's preferred partner sites). Internet Explorer's smart links will send users to Microsoft's partner sites for information. In so doing, XP will detonate the current Internet power structure. As was the case with Netscape and its navigator browser market share, AOL and many other ISPs and online providers will see dramatic drop-offs in users unless they partner with Microsoft. Web sites that don't partner with Microsoft face extinction, just as sites that didn't design for Internet Explorer are now extinct.

As frightening as the expected outcome is, I don't expect strong antitrust action. As this goes to press, much of Jackson's ruling as to the antitrust remedy has been overturned on appeal, sending it back to District for a less restrictive punishment. Yet, the core of the ruling itself has been upheld, which still could restrict XP development in some ways. Already rumor has it the smart links feature is being scrapped. In any event, Microsoft will not endure a break-up, and most of its recent momentum will be intact.

We might see some relief from AOL's ongoing talks with Microsoft, which have just broken down again at the time of this writing. In 1996, AOL and Microsoft signed a five-year deal to ensure that users of both AOL and Microsoft products have good experiences. One key aspect of the deal was exclusivity: If AOL agreed to cooperate with Microsoft, Microsoft insisted that AOL not cooperate with Netscape. That exclusivity played a crucial role in antitrust trial, with key AOL executives serving as witnesses for the prosecution.

Now that the agreement is about to expire, the two giants return to the table as direct competitors in several markets in which competition seemed far-fetched five years ago. In this case, the sticking point is AOL's use of RealNetworks RealPlayer streaming media software. Microsoft again wants exclusivity; it wants AOL to bundle Microsoft's Media Player for its users and stop giving users the choice to use RealPlayer.

AOL is also a party to the ongoing antitrust action against Microsoft, and the latter naturally doesn't want AOL to pursue it. Justice is in the fact-finding mode right now, and must figure out what remedy to pursue now that the original break-up has been overturned. At various times in the negotiations, Microsoft has insisted that AOL include an agreement not to help Justice. This should raise suspicions since AOL has the most clout and experience to contribute to the antitrust process right now. (Ironically, AOL also is the subject of a lot of antitrust scrutiny by various parties.)

Some people claim Linux is the X factor. But while I am encouraged about Linux server numbers, I'm skeptical of the end-user numbers. I think Linux with the KDE desktop is every bit as easy to use and far more crash-resistant than Me. But users have to take the initiative to load it on their machines, usually on a second partition. And most users don't want to leave all their old-shoe applications behind just to switch to an operating system that no longer forces them to reboot. If more OEMs offered the option for Linux preloaded with Star Office and other easy tools, Linux might make headway. But the fact is that few do. Whether Microsoft is forcing OEMs into exclusivity deals by threatening to withhold Windows, as it did with Internet Explorer in the '90s, is open to speculation.

Some say not to be concerned about monopoly. After all, Microsoft is innovating like never before despite its monopoly, and users have to benefit from all this innovation. I say the benefits of many of the innovations are marginal and what benefits there are often don't justify the costs of continuous upgrades. Take Office XP. It comes on the heels of the last Office release and costs double what any "competitive" product would cost. And Microsoft will soon make upgrading mandatory, with a subscription model that it has already rolled out Down Under.

On the server side (where it is much harder to prove a monopoly), there's MCSE. NT administrators will soon be required to upgrade their skills to Windows 2000. Admins fear that when the next server OS-code-named Whistler-comes out, they'll need to pony up again, though Microsoft denies this.

This is what we're in for with the Microsoft monopoly: an endless stream of expensive new products that taxes companies and their users to the breaking point. Are you ready for it?