Web of legality over software threatens Microsoft's march

Microsoft, the world's dominant software manufacturer, has vowed to fight a possible federal antitrust suit that would wreck the introduction of Windows 25, its new operating system.

The US Justice Department has been investigating a potentially illegal component in the new software that could allow Microsoft's virtual monopoly in one business to monopolise another.

With only three weeks before introduction of the new software, a federal investigation has been extended to include Microsoft's plans to include a Web Browser in the product - a feature that would allow users to access the World Wide Web, one of the fastest growing areas of the Internet.

Microsoft announced 10 days ago that it would include the feature in addition to offering its own Microsoft Information service, or MSN. Competitors in the fast-growing business have charged that Microsoft's plans would give unfair advantage to the company, which already has an effective monopoly on computer operating systems.

On-line services such as America Online, Compuserve and Prodigy have appealed to consumer groups, congressional leaders and directly to the Justice Department to block the "bundling" of the new communication software in with Windows 95, arguing that the system is the wedge that would allow Microsoft to monopolise a business growing at a rate of 14,000 new subscribers a day.

"The government believes that Microsoft's forced inclusion of the MSN access software might, under certain facts, violate antitrust laws," Assistant US Attorney, Anne K Bingaman, said in a filing to a federal judge in New York.

With about 8.6 million customers, on-line services currently pay computer manufact- urers to include their software in new computers or give it away in promotions. Included into Windows 95, Microsoft's communication service expect 20 per cent - nine million - subscribers in the first year.

"When it comes to the on-line business, we are not going to stand by while Microsoft engages in practices that jeopardise what is now an open, competitive and growing industry," said CompuServe president Bob Massey.

The intense interest surrounding the new software underscores just how important the $81bn personal computer industry has become to commerce and culture in the US. Many Wall Street analysts have identified the surge in stock prices this year with anticipated sales in technology, particularly computers and software.

Microsoft's current software, Windows 3.1, already dominates the software market and runs on more than 100 million computers worldwide - about 80 per cent market share. Windows 95 is the first major revision to the program since 1990 and is expected to ship 30 million units in its first four months of release, and 100 million by 1998.

The new system, held up by technical glitches since last December, promises to be better and faster than its predecessor but will also require faster machines to run it. With an extra eight million lines of command in the program, fewer than 40 per cent of computers have enough capacity to run it without expensive upgrading.

The Justice Department has dropped a demand for more documents from Microsoft and must make a decision on the information it has. If federal investigators file suit, it will upset a huge manufacturing, marketing and sales operation that has been building for months.

Production has been revved up to seven times its normal capacity and the company has a fleet of 500 trucks to ensure the product - $100 a piece - will be available at 20,000 outlets on 24 August. According to Bill Gates, Microsoft's chairman, a $150m advertising campaign has won advance orders "beyond what we've had for any other product by a factor of two."

The prospect of Windows 95 has created intense fear in competitors. It is predicted that IBM will cease production of its OS/2 operating system in January, leaving only Apple Macintosh as the viable alternative.

With such little time remaining, it seems unlikely that the Justice Department will bring the case to court. Even lawyers for the on-line services concede the difficulty of assembling an antitrust case as the technology is new and the Microsoft Network does not yet have a single paying customer.

Microsoft, meanwhile, is confident that Windows 95 will indeed reach the stores. "We remain curious about what the Government case may be," said Greg Shaw, a spokesman for the Seattle-based company. "Our plans for Microsoft Network are entirely pro-competitive."