September 23, 2005 4:00 AM PDT

Microsoft's nightmare inches closer to reality

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on bringing a Web platform closer than ever to the operating system, analysts said.

MSN could be what Windows could never be: a Net platform that allows developers to write and distribute their code quickly. Patches and upgrades that take weeks or longer to distribute with traditional software can be done overnight, simply because they're all under the same umbrella. By comparison, the successor to Windows XP, introduced in 2001, isn't due until next year.

Redmond's grip loosening
In fact, MSN has already been used as a vehicle for shipping Windows features, said Rob Helm, director of research at the independent research firm Directions on Microsoft. The search service in Windows Vista, for example, shipped earlier as MSN Desktop Search. In addition, Internet Explorer features, like tabbed browsing, and protection against phishing techniques--in which online scammers entice unwitting Internet users to log on to fake Web sites that steal their information--shipped first through MSN, Helm added.

special report
Search and destroy
In 2003, it was already evident that Microsoft's Windows plans were leading directly to search king Google.

Not all that long ago, Microsoft execs were saying Internet Explorer updates were inextricably tied to Windows updates. But the most recent version of the browser shipped ahead of Windows Vista so, some analysts believe, Microsoft could keep pace with the upstart Firefox browser.

"MSN has become, bit by bit, a channel to get stuff out from a Windows organization that otherwise was kind of blocked by their rather difficult delivery process" that can be slowed by traditional sales channels, he said.

Of course, Microsoft isn't in danger of falling apart anytime soon. The Windows monopoly, the Office desktop suite and the Exchange e-mail system give Microsoft plenty of money to fix the problem. And it's not as though tech giants disappear into the night: IBM, after several years of scuffling, reinvented itself as the tech services king.

But it's fair to say that the hammerlock Microsoft has had on tech for better than a decade may finally be loosening. Increasingly, Web surfers are finding alternatives to the PC for their Net access. And no competitor, not even Netscape, has captured the public's imagination the way Google has.

The memo now circulating shows that Microsoft execs are well aware of the search giant's impact. "Google threatens Microsoft's position on the Internet, and could potentially lock Microsoft out of its existing distribution channels and reduce the value of Windows," the memo said, according to The Wall Street Journal. The Journal first reported on the memo Thursday. Microsoft, the memo said, was playing "an expensive game of catch-up."

Now the battle is intensifying, and MSN is an ideal launch pad for Redmond's counter-offensive. Last week, rumors swirled that Microsoft would acquire AOL or enter into a partnership that could have AOL using MSN's search engine and effectively swiping Google's single biggest source of revenue. Neither company has confirmed the rumors.

"MSN will be higher profile, and it will also be better leveraged," said David Smith, an analyst at Gartner. "There is a lot of good technology and a lot of assets over there that can be leveraged."

Until now, MSN has struggled to find its niche within Microsoft. It started out in the Windows group when Windows 95 launched. Later, it was positioned as a competitor to AOL's proprietary service and bundled dial-up Internet access. It even once featured broadcast TV-type programming over the Web, not to be confused with the MSN TV set-top box division it has today.

"Few products at Microsoft have gone through so many strategic identity shifts over the years as MSN has," said Jupiter's Gartenberg.

MSN finally reached operating profitability two years ago because of an increase in online advertising, particularly keyword search sales. That brings it to where it is today: a well-traveled property whose time may have finally come.

While analysts praised Microsoft's new MSN vision, they said the devil will be in the details that Microsoft hasn't offered many of yet. Gartenberg predicted that MSN's instant-messaging service, for one, will become part of the Windows environment.

"There is no doubt that whatever Microsoft will be offering vis-?-vis MSN, and how MSN goes forward, it is going to be strongly integrated back into the whole Windows platform," he said.

Added Gartner's Smith, "I think you are seeing the beginning of Microsoft kind of getting themselves set for the redefinition of platform--the era we are calling the second Web revolution."

What remains to be seen is whether Microsoft is able to do battle with Google as successfully as it did with Netscape.

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