Here Comes Windows 98 Browser And All

Will the Justice Dept. bring a new suit against Microsoft?

In Building 27 on Microsoft's Redmond (Wash.) campus, programmers are gearing up for a time-honored tradition: weeks of caffeine-powered, round-the-clock testing and polishing that mark the final leg in a new software product's trip to market.

This time, though, the programmers have an extra reason to keep up the grind: They're in a race to stay on schedule to finish Windows 98, the first big Windows update in three years, before the next battle with government regulators begins. The fate of Win98--as well as succeeding generations of Microsoft operating systems--hangs in the balance. The question to be answered: Can Microsoft Corp., as it plans to do with Win98, only offer computer makers a product that packages the operating system and browser in one bundle?

The government thinks not. In a December suit, it charged that the browser and the Win95 operating system are separate products and that by forcing licensees to take both, Microsoft is violating its 1994 consent decree. On Jan. 22, Microsoft caved in--briefly--by agreeing to separate browsing program Internet Explorer from Windows 95.

But that was simply a tactical maneuver to avoid an imminent contempt citation. Microsoft says it will keep defending its right to add new capabilities, such as Web browsing, into its operating systems. The consent decree targets Win95, but it also addresses "successor products," which could be interpreted to mean Win98.

The issue could come to a head before a court ruling expected by May or June on whether the decree can be used to force Microsoft to separate the operating system from the browser. Sources close to Justice say that Joel I. Klein, the assistant attorney general leading the Microsoft case, is considering another action against the giant that would focus on Win98. An action based on the existing consent decree could be problematic, since Win98 intermixes operating system and browser programming. The other option is an all-new, broad-scale antitrust case. Justice recently hired star litigator David Boies to help put together the pieces of a potential case. Klein has said that even if Win98 with browser is found not to be in violation of the decree, he has "an ongoing concern about the use of monopoly power to protect or extend a monopoly."

Back at Microsoft, it's full speed ahead to get Win98 to computer makers this spring. "We've just been told to ship Windows 98 as soon as possible," says Jonathan Roberts, director of Windows marketing at Microsoft. Regardless of the legal situation, the software maker can't afford to let deliveries slip, even if that might keep regulators at bay. Rod Schrock, vice-president for Compaq Computer Corp.'s Presario PC Div., says he needs his Win98 shipment no later than June, and probably earlier, if his company is to ready PCs for the important back-to-school season that starts in mid-August.

RAPID RELEASE. Indeed, Microsoft may see sticking to its April ship date as a key move in its battle with the feds. Once the product is out, any action to stop Win98 would involve not only Microsoft but also the hundreds of PC makers and software developers who will then be using the new Windows. Typically, a new operating system release spurs new buying, and Microsoft may be betting that no government will knowingly disrupt growth in the PC industry without a clear benefit to consumers. "If they want to seek changes in Win98, the Justice Dept. will have a strong incentive to move sooner, rather than later," says Carl Shapiro, a professor of economics at the University of California at Berkeley and a former chief economist for Justice.

While the dispute over Windows plays out in the courts, Microsoft's campus is buzzing. Behind Win98 are other products that blend the Windows operating system with the Internet. A new version of Windows NT, which will include Explorer and should be a hot seller in corporations, is being readied for the mass market. Then there's Windows CE, a scaled-down version being built into consumer appliances, such as TVs, which also has Explorer for connecting to the Net.

Joel Klein and his minions had better stock up on the coffee, too. This will be a long battle for both armies.

Before it's here, it's on the Bloomberg Terminal.