WASHINGTON -- As Microsoft prepares to introduce Windows XP, one of the most important products in the company's storied history, it continues to suffer from one insurmountable problem.
It's not the Microsoft engineer's programming error that permitted the Code Red worm to crawl into servers across the Internet. Nor is it the company's other embarrassing security snafus, which invite other electronic vermin like Sircam to infest Windows inboxes.
Microsoft is still struggling to overcome the same public perception of an arrogant, industry-straddling bully that first landed it in legal trouble with the Feds over a decade ago.
This view received a boost in June, when a federal appeals court tossed out the immediate possibility of a breakup -- but ruled that Microsoft possessed a monopoly that it illegally tried to preserve by strong-arming PC makers into accepting deals that disadvantaged the software giant's competitors.
The unanimous court put it bluntly. With one exception, the judges said, all the "license restrictions at issue represent uses of Microsoft's market power to protect its monopoly, unredeemed by any legitimate justification."
Last week, Microsoft appealed that decision to the U.S. Supreme Court, saying U.S. District Judge Thomas Penfield Jackson's nasty comments in private chats with reporters should give the world's most famous antitrust defendant a new trial.
Yet to hear critics put it, even such a chilling ruling wasn't enough to change Microsoft's behavior. Last week, company officials outlined the desktop restrictions under which Windows XP -- scheduled to be formally introduced Oct. 25 -- would be licensed to computer makers like Compaq, Dell, and IBM.
"You've got a committed recidivist here, they haven't changed one iota and there is nothing substantially different about the way they use the full brute force of monopoly power to enforce their market dominance," says Ed Black, head of the Computer and Communications Industry Association, a group funded in part by Microsoft arch-rivals AOL Time Warner, Sun, and Oracle.
Black, whose group filed briefs urging Judge Jackson to carve Microsoft into thirds, says restrictions on the software maker's conduct aren't sufficient. "We advocate a break-up," Black says.
He's not alone: Microsoft critics in Washington include left-leaning public interest groups, prominent lawyers like Ken Starr and Robert Bork funded by AOL and Sun, and some Democratic senators. Last month, Sen. Patrick Leahy (D-Vermont), the chairman of the Judiciary committee, announced plans for hearings this fall, and Sen. Charles Schumer (D-New York) invited an injunction against Windows XP.
Schumer may be just performing able constituent service -- AOL's headquarters is in his home state -- but the notion of the recently-merged media and technology collossus as a defenseless weakling seems a stretch. As of Friday, AOL had a market capitalization of $196.9 billion, while Microsoft was valued at $352.6 billion. AOL has far larger content reserves and dominates the online services market, while Microsoft has a similar hold on the PC desktop. And both share one near-term goal, which has put them on a collison path: Making money off paid Internet services.
AOL has used the antitrust case, and the appeals court's monopoly ruling in particular, as a hammer to pound in the public perception that Microsoft is a malicious monopolist. The New York-based corporation remains better connected in the nation's capital, and has used its network of lobbyists to avoid much antitrust scrutiny of its own products, such as its controversial closed instant messaging system.
In other words, the battle over the Windows desktop that's framed in terms of protecting consumers through the blunt force of antitrust law -- Schumer says he wants Microsoft to "let consumers choose the best application, rather than letting Microsoft choose Microsoft applications for them" -- can also be explained by firms turning to lobbyists to gain market share and put competitors at a disadvantage.
For their part, Microsoft lobbyists have been fighting a largely defensive battle. In a letter to the Senate Judiciary committee obtained by the Associated Press, Microsoft lobbyist Jack Quinn said: "The committee should not sit in judgment of particular matters or entertain hearings that promote the biases of particular litigants." Microsoft says publicly, however, that it's trying not to be distracted by its legal woes.
"The folks here are really focused on the launch itself," says Microsoft spokesman Jim Desler. "The focus has been on getting our product out to consumers and to manufacturers."
When PC makers receive Windows XP, which could happen as early as September, they have two options. One is to ship what Microsoft calls a "clean desktop" with no icons -- the idea is that users will rely on the Start menu instead.
Or, if they choose, PC manufacturers can instead place whatever icons they like -- including ones belonging to AOL and other Microsoft competitors -- on the desktop.
That second choice comes with a few strings attached. Microsoft has requested that three of its own icons, in addition to the "recycle bin," remain on the desktop as well: Internet Explorer, MSN Explorer, and Windows Media Player.
In a concession to the antitrust case, PC makers may remove Internet Explorer if they wish and replace it with Netscape or other browsers, but their licensing agreement does not permit them to delete the media player icon. "They can't take off Windows Media Player or the recycle bin icon," says Microsoft spokesman Vivek Varma.
If PC manufacturers choose to remove MSN Explorer, "it needs to be replaced with MSN Internet Access," a referral service to Internet providers, Varma said.
Roger Frizzell, a spokesman for Compaq, said icons for AOL and Compuserve -- an AOL property -- would definitely appear and negotiations are underway with other companies.
"We favor a clean desktop approach, but there will be an AOL icon," Frizzell said. "We have a profit-sharing arrangement with AOL where we provide an (initial boot sequence) in which a customer is offered the chance to subscribe to their service when they boot up the computer for the first time."
Tom Kehoe, a spokesman for Dell, said he couldn't discuss what icons would appear on his company's computers with Windows XP. "The launch is still aways away, and we are still making decisions about what icons will appear, so we are trying to remain low key about the issues," Kehoe said.
A spokesman for IBM said the same thing. "We're in negotiations with Microsoft right at the moment and no decisions have been made yet," spokesman Ray Gorman said.
"Of course they're arrogant," Jim Lucier, an analyst in Prudential Securities' Washington office, says of Microsoft. "If you're Bill Gates, you'd be arrogant too."
"The answer is (it) takes a big company to do a big job," says Lucier. "If you look at the enormous project that makes it possible for consumers to access any information from any location from any device, that's a tremendous amount of software that has to be written.... The question is if Microsoft doesn't do this Herculean feat, who will?"
