Microsoft

Microsoft said on Thursday that it has finished development work on the virtualized version of Windows XP that Windows 7 users can use to run programs that won't work on the newer operating system.

In a statement, Microsoft said that it has finalized the code for the free "XP Mode" and that the software will be made available on October 22, the same day that Microsoft launches Windows 7.

Computer makers will also be able to offer Windows XP Mode with their systems, Microsoft said.

Microsoft said back in April that it would offer the XP Mode. Aimed primarily at small businesses, the virtualization layer is designed to help ease the transition for those still running programs that don't work properly with Windows 7 or Windows Vista.

To use the compatibility layer, users need to be running Windows 7 Professional, Windows 7 Enterprise, or Windows 7 Ultimate.

The other tricky point is that to use XP mode, consumers also need a machine that has chip level virtualization support and has that feature turned on, something that isn't always easy for consumers to determine.

At its core, XP Mode consists of two things, the Windows Virtual PC engine and a licensed copy of Windows XP Service Pack 3 as a packaged virtual machine, both of which Microsoft will make available for download.

Microsoft has announced that XP Mode, the Windows 7 add-on that will allow users with the proper hardware to run a virtual version of Windows XP within Windows 7, has entered Release Candidate status.

There are several new features in XP Mode RC. XP Mode programs will now offer users a jumplist of most recently opened files with that program. This brings one of Windows 7's more useful productivity features into play with older programs that wouldn't otherwise have it. So, not only will you be able to directly start your most recently used XP Mode programs from the Windows 7 taskbar, but you'll be able to launch specific files from the Windows 7 taskbar, too. You can now use USB devices in XP Mode without having to make it full-screen, directly from the Windows 7 taskbar.

Drive sharing between XP Mode and Windows 7 can be disabled, and a new tutorial has been created on how to use XP Mode that users will first get access to from the XP Mode installation screen. In the XP Mode beta, users couldn't customize where to store differencing disk files. These relate to the virtualization aspects of running XP in Windows 7.

Microsoft's Brandon LeBlanc recommends in the blog post announcing the XP Mode RC that users install antivirus and anti-malware protections in XP Mode in addition to whatever protective steps users have taken in the native Windows 7 environment. He also cautions that XP Mode is designed for running productivity applications that won't be upgraded to Windows 7, implying that Microsoft doesn't expect the average consumer to get much mileage out of the feature.

Users who are still interested in testing out the Windows 7 RC can still do so through August.

In a reversal on Friday, Microsoft said it is now open to allowing users in Europe to select competing browsers in Windows 7.

Essentially, Microsoft is offering to put into Windows a way for consumers to easily install a rival to Internet Explorer. PC makers, as they can today, could still install a rival browser and could also disable Internet Explorer, if they choose.

"Under our new proposal, among other things, European consumers who buy a new Windows PC with Internet Explorer set as their default browser would be shown a 'ballot screen' from which they could, if they wished, easily install competing browsers from the Web," Microsoft general counsel Brad Smith said in a statement.

As first reported by CNET News earlier this month, Microsoft had hoped to comply with Europe's objections to the inclusion of a browser in Windows simply by removing the browser entirely from Windows 7. However, the European Union indicated that such a move might not satisfy its concerns.

Microsoft has had "preliminary talks" with European Union officials with the hopes of settling several regulatory probes, according to a Bloomberg report.

According to the report, Microsoft is aiming to settle the matters before EU Competition Commissioner Neelie Kroes steps down at the end of the year. One issue is the EU's well-publicized concern over the bundling of Internet Explorer into Windows, while the other pertains to Office software, Bloomberg said.

The EU earlier this year issued a preliminary finding that the inclusion of a browser in the operating system violated European antitrust law and has been exploring a variety of potential remedies, including forcing Microsoft to distribute rival browsers with its operating system.

Last month, CNET News reported that Microsoft was planning to ship Windows 7 in Europe only in versions that had the browser feature removed, aiming to sidestep regulatory action. However, both the EU and rivals issued concern over that approach.

As for the Office inquiry, Microsoft has said it was opened in January 2008 and resulted from complaints filed by a trade association of Microsoft's competitors.

An EU spokesman did not immediately respond to a request for comment on the report of settlement talks and a Microsoft representative declined to comment. Both Microsoft and an EU spokesman declined to comment in the Bloomberg report.

The European Commission on Thursday responded with a mixed assessment of Microsoft's move to strip Internet Explorer out of European versions of Windows 7.

As first reported by CNET News, Microsoft has been telling PC makers of its plan to offer Windows 7 in Europe with the browser removed. PC makers and consumers would have to add in a browser. That would be simple--and potentially profitable-- for PC makers, but could prove quite a hassle for those trying to upgrade an existing PC to Windows 7.

In a statement, regulators said that the move seems a step backward in the retail software arena, but said it could be more positive in the new PC market, which is how 95 percent of consumers get a new version of Windows.

"As for retail sales, which amount to less than 5 percent of total sales, the Commission had suggested to Microsoft that consumers be provided with a choice of Web browsers," the Commission said. "Instead Microsoft has apparently decided to supply retail consumers with a version of Windows without a Web browser at all. Rather than more choice, Microsoft seems to have chosen to provide less."

But, as for the new computer market, stripping out the browser might be a good thing, the Commission says.

"As for sales to computer manufacturers, Microsoft's proposal may potentially be more positive," the commission said. "It is noted that computer manufacturers would appear to be able to choose to install Internet Explorer--which Microsoft will supply free of charge--another browser or multiple browsers."

Opera, the Norwegian browser maker that pushed the EU to open its case, said that it is wholly dissatisfied with Microsoft's action.

"They are under pressure to do something and they come up with this thing, which is quite obviously not going to work," Opera CTO Hakon Wium Lie said in an interview "This is very similar to what the remedy was in the Media Player case. It was widely recognized that that was an insufficient remedy. It was too little too late."

Lie said Opera favors an option that the EU has been considering in which consumers would be offered a choice of browsers when they buy a new PC.

The Commission said it expects to act soon in its own case against Microsoft, and suggests Microsoft's action wasn't among those it was considering. The commission issued a preliminary finding in January that the inclusion of a browser in Windows violated European antitrust law. Microsoft has objected to that finding.

"The Commission will shortly decide in the pending browser-tying antitrust case whether or not Microsoft's conduct from 1996 to date has been abusive and, if so, what remedy would be necessary to create genuine consumer choice and address the anticompetitive effects of Microsoft's long-standing conduct," the Commission said. "In terms of potential remedies if the Commission were to find that Microsoft had committed an abuse, the Commission has suggested that consumers should be offered a choice of browser not that Windows should be supplied without a browser at all."

The chief complainant in the European browser case against Microsoft says that the move to strip Internet Explorer out of Windows 7 in Europe is an insufficient step that won't lead to better competition in the browser market.

In an interview, Opera Chief Technology Officer Hakon Wium Lie said that with regulators threatening action, Microsoft was under pressure to do something, but said that its choice wasn't what Opera was looking for. Lie told CNET that Opera wants people to have access to more browsers, not fewer.

Hakon Wium Lie

(Credit: Opera)

"I don't believe this is going to restore competition in the marketplace," he said.

Instead, Lie favors a proposal that the European regulators have been considering that would require users to be given a choice to download one or more browsers the first time they access the Internet.

"We would like to give users a genuine choice," Lie said. The remedy that the EC has been discussing, a so-called "must-carry" remedy, would be a better solution, he said.

Microsoft acknowledged in a blog posting that regulators could still force that to happen.

"Our decision to only offer IE separately from Windows 7 in Europe cannot, of course, preclude the possibility of alternative approaches emerging through Commission processes," Deputy General Counsel Dave Heiner said in the blog.

But Heinen said that Microsoft believes its move puts it in compliance with European law.

"We believe that this new approach, while not our first choice, is the best path forward given the ongoing legal case in Europe," he wrote. "It will address the 'bundling' claim while providing European consumers with access to the full range of Windows 7 benefits that will be available in the rest of the world."

For his part, Lie said it is a solution that won't fundamentally change anything, as was the case when the company issued a version of Windows in Europe with the Media Player removed.

"They are under pressure to do something and they come up with this thing, which is quite obviously not going to work," he said. "This is very similar to what the remedy was in the Media Player case. It was widely recognized that that was an insufficient remedy. It was too little too late."

By removing the browser, Microsoft won't make life any easier for Opera, which still needs to find a way to get its browser on to computers. It could theoretically now strike a deal with PC makers to get Opera included in place of Internet Explorer, but of Microsoft's rivals, only Google seems likely to have that kind of money. Lie said his company definitely does not.

"Certainly, we are in no financial situation to pay lots of money to have Opera distributed on new PCs," he said.

The situation is even more precarious for those upgrading existing machines to Windows 7. In that case they get a PC with no browser at all. Microsoft will make lots of CDs that will give users IE 8 if they want, but Opera and rivals have no easy way to get on those machines, short of following Microsoft's approach.

Lie also objected to the fact Microsoft is only making the move in Europe.

"It's Europe only," he said. "We're looking for more than that. We want the whole world to have better access to better browsers."

Microsoft's move to offer Windows 7 in Europe without a browser may help rivals, but it could make life more difficult for European consumers, particularly those who want to upgrade their existing machines.

As first reported earlier on Thursday by CNET News, Microsoft plans to ship Windows 7 to both PC makers and retail stores with Internet Explorer removed.

Now, most people will get Windows 7 on a new PC. Presumably, in that case, the computer maker will chose to add back Internet Explorer, include one or more rival browsers, or do both.

Indeed, that is what Microsoft itself is suggesting.

"Microsoft recommends that OEMs pre-install either IE8 or at least one other browser of their choice before distribution," Microsoft said in a memo to PC makers that was seen by CNET News. "If you do this, your end users in the European territory should be able to access the Internet without any additional steps or inconvenience."

The real hassle comes for those who want to upgrade their existing PC to Windows 7.

Moving from Windows Vista to Windows 7 can normally be done via an upgrade that preserves one's applications and data. However, because it removes the browser, moving to the "E" version of Windows 7 can only be done with a clean installation.

At that point, users have a system with no browser at all. So if they want Firefox or Opera or any other browser, they have no easy way to get it. For its part, Microsoft plans to make it as easy as possible for them to get IE. It will offer it via CD-ROMs at retail stores and via FTP, an old file downloading technique that has been largely sidelined due to modern browsers.

Forrester Research analyst J.P. Gownder said that the result is something that is very unfriendly to the very consumers that the EU is allegedly trying to protect. The European Union said in January that it had reached a preliminary finding that the inclusion of a browser within Windows violated its antitrust laws.

"It's a disaster caused by poor regulatory oversight," he said."It's definitely regulation gone wild and it's not going to help the consumer."

Matt Rosoff, an analyst with Directions on Microsoft, said the software maker probably made the move in an effort to avoid further regulatory action on the part of the European Union, which said in January that it believed the inclusion of a browser in Windows was a violation of European antitrust law.

"I guess Microsoft has taken the preemptive move to avoid a big fine," he said. "The EU didn't ask them to do this. They are still fighting the statement of objections."

So who benefits? Well, PC makers stand to gain, because they now have a more valuable piece of real estate to sell. In the past, they could offer deals to include rival browsers as the default on a new PC, but they were still shipping a PC with Internet Explorer. Presumably now, a browser maker could strike a deal to be the only browser on a machine.

"It certainly gives them a new placement to sell," Rosoff said. "Previously, with IE included, there wasn't as much incentive for browser makers to strike these kind of deals."

Of course, striking an exclusive deal would probably take a lot of cash. So it would seem Google, and not Opera (which brought the EU complaint), is in the best position to take advantage of the new landscape.

Gownder said he expects most new machines sold in Europe will still come with Internet Explorer, though some smaller PC makers might opt to exclude Microsoft's browser.

"It could be that there are some deals cut," Gownder said. "I would think the more typical case is that they ship with IE or IE plus one other."

As for Microsoft, Rosoff said that the company plans to offer an "Internet Pack" disc that includes not only IE, but also its Windows Live programs such as Windows Live Mail and Windows Live Messenger.

Editors' note: Matt Rosoff is a member of the CNET Blog Network.

Microsoft plans to remove Internet Explorer from the versions of Windows 7 that it ships in Europe, CNET News has learned.

Reacting to antitrust concerns expressed by European regulators, Microsoft plans to offer a version in Europe that has the browser removed. Computer makers would then have the option to add the browser back in, ship another browser or ship multiple browsers, according to a confidential memo that was sent to PC makers and seen by CNET News.

"To ensure that Microsoft is in compliance with European law, Microsoft will be releasing a separate version of Windows 7 for distribution in Europe that will not include Windows Internet Explorer," the software maker said in the memo. "Microsoft will offer IE8 separately and free of charge and will make it easy and convenient for PC manufacturers to preinstall IE 8 on Windows 7 machines in Europe if they so choose. PC manufacturers may choose to install an alternative browser instead of IE 8, and has always been the case, they may install multiple browsers if they wish."

Microsoft confirmed the authenticity of the document but declined to comment further.

European regulators had said in January that the inclusion of a browser in Windows--something Microsoft has done for more than a decade--was a likely violation of European antitrust law. Microsoft disclosed in an SEC filing earlier this year that it believed the EU might seek to force Microsoft to distribute rival browsers or take other action.

Microsoft's decision to offer Windows 7 in Europe without IE appears to be an effort to head off such action as well as to ensure that it can ship Windows 7 in Europe at the same time it does so elsewhere. It comes at an interesting time, though, as Microsoft faces its strongest browser competition in years, with Mozilla, Apple and Google all gaining ground.

"The whole thing is pretty silly," said Forrester Research analyst J.P. Gownder. "Since Microsoft first took on Netscape years ago there has never been more competition in the browser market."

Firefox is particularly strong in Europe. According to AT Internet Institute (formerly XitiMonitor), IE had a 59.5 percent share in Europe as of November, compared with 31.1 percent for Firefox. Opera had about 5 percent, and Safari half of that. Microsoft lost a full 5 percentage points of market share since from April to November 2008.

Microsoft's decision, though, is also interesting given that the company argued in its long antitrust battle that the browser was an integral part of the operating system that could not easily be stripped from Windows.

The browser-less versions, dubbed Windows 7 "E", will be distributed in all members of the European Economic Area as well as Croatia and Switzerland. In addition, Microsoft will strip the browser from the Europe-only "N" versions of Windows 7, which also removes the Windows Media Player from the operating system and is the result of another move by Europe's antitrust authorities.

In contrast with the "N" version, though, Microsoft will not also sell a full-featured version of Windows that includes the browser.

"Microsoft will not offer for distribution in the European territory the Windows 7 product versions that contain IE, which are intended for distribution in the rest of the world," Microsoft said in the memo. "This will apply to both OEM and Retail versions of Windows 7 products."

For computer makers that want it, Microsoft will offer a free "IE 8 pack" that allows them to add the browser back in. It's a little more complicated for consumers who buy a retail copy of Windows 7. Because the operating system lacks a browser, there's not a direct way to go to Microsoft's Web site to download one. Microsoft aims to make it as easy as possible for folks in Europe to get the browser, though, and plans to offer it via CD, FTP and retail channels, according to a person a familiar with the situation.

"Microsoft is focused on ensuring that Windows 7 is a successful worldwide release available to the broadest number of consumers, including those in Europe," The software maker said in the memo. "We believe that we need to release these E versions to address the preliminary legal views communicated to us in the EU. We are informing OEMs of these plans now so that we can work together to meet our shared goal to have Windows 7 broadly available for a holiday launch."

The software maker says in the memo that it is only stripping the browser from Windows 7 and won't do the same with older operating systems, or with the virtualized version of Windows XP that is part of the free "XP mode" download.

"This announcement impacts Windows 7 products only," the software maker said in the memo. "Microsoft has no plans at this time to release versions of Windows Vista or Windows XP products without Internet Explorer. This announcement does not impact Windows XP mode for Windows 7 Ultimate and Windows 7 Professional."

Microsoft doesn't plan to offer the browser-less "E" version outside Europe, but is also offering an option in all regions in which users can hide IE 8, as part of a control panel that lets users turn on and off various operating system components.

Update, 12:20 p.m.: Microsoft has posted a blog on its law and policy Web site, in which one of its lawyers responds to our story.

Of note, deputy general counsel Dave Heiner notes that Microsoft's action was taken unilaterally and doesn't preclude the EU from ordering some other type of remedy, such as allowing users to choose which browser they want as part of the installation process.

"Our decision to only offer IE separately from Windows 7 in Europe cannot, of course, preclude the possibility of alternative approaches emerging through Commission processes," Heiner wrote. "Other alternatives have been raised in the Commission proceedings, including possible inclusion in Windows 7 of alternative browsers or a 'ballot screen' that would prompt users to choose from a specific set of Web browsers."

Microsoft said it wouldn't have been right for it to adopt such an approach on its own. "Important details of these approaches would need to be worked out in coordination with the Commission, since they would have a significant impact on computer manufacturers and Web browser vendors, whose interests may differ," Heiner wrote. "Given the complexity and competing interests, we don't believe it would be best for us to adopt such an approach unilaterally."

(Credit: Microsoft)

Microsoft is reportedly facing another antitrust inquiry, this time from the Russians.

According to a Reuters report Thursday, regulators there argue that Microsoft is violating Russian antitrust law by limiting supplies of Windows XP while demand exists and forcing people to buy Windows Vista.

Microsoft has largely stopped selling Windows XP for use on new computers, although it is still allowed in some emerging markets as well as for very low-cost machines, such as Netbooks.

The software maker says it has yet to be notified of the complaint.

"Microsoft has not yet received notice of any new investigation," Microsoft spokesman Jack Evans said in a statement to CNET News. "However, we will cooperate with any inquiry and remain committed to full compliance with Russian law."

In April, Russia said it was looking into whether Microsoft deserved closer scrutiny under its antitrust laws.