Windows CE is a scaled-down operating system used in devices ranging from handheld computers to Internet appliances and smart cash registers. What Microsoft is considering, sources said, is removing the licensing fees hardware and software makers pay the company to use the operating system in products such as bar-code scanners and "smart" gas pumps, for example.
The move comes as Microsoft continues to struggle to find a niche for the operating system. Since its launch two years ago, Windows CE has been dogged by customer complaints that it is buggy, bloated and ill-suited for the small and inexpensive devices and appliances it was intended to power. In the handheld market, the company repeatedly has repositioned and tinkered with the operating system after failing to grab market share from Palm.
"Windows CE market share is not something they brag about. They're playing catch up, and that calls for aggressive pricing," said Richard Doherty, president of the Envisioneering Group.
By removing the licensing fees associated with Windows CE, Microsoft may be hoping that some of the luster of Linux--which recently has been making a play for the embedded appliance market--will rub off on the software giant.
But Microsoft's strategy is likely to differ significantly from Linux and the open-source movement, under which anyone can see and modify the original programming blueprints, or "source code," of a program. Unlike Microsoft, which keeps the source code to its all its operating systems tightly under wraps, Linux is publicly available. Linux and open source software in general has skyrocketed in popularity among developers because they can update and fix problem areas themselves.
"Opening it up would make them more pleasing to the development community," said Michael Arrington of the Jon Peddie Group, a Tiburon, Calif.-based consultancy. "All the open-source developers want to know exactly what's going on, so they can tune it. But Microsoft really likes to control the standards--even when it would be to their advantage to let them tinker with it."
"I would be astounded if Microsoft would consider going open source with Windows CE, because that would be exposing a significant part of the core Windows code," said Dwight Davis, analyst with Summit Strategies. "As far as I can tell, that is not part of the Windows strategic direction any time soon."
On the other hand, Davis said he wouldn't be shocked if Windows CE was made available for free, because "clearly, Microsoft has ground to make up on Palm," he said. Additionally, the software has only slowly made inroads into other markets populated by real time operating systems because its performance has not been up to par with competitors, Davis said.
Microsoft is unlikely to go that far in its own efforts. In fact, the company flat out denies that any such "open source" plan is in the works. Sources close to the company admit the Windows CE group is exploring new pricing strategies, including giving away parts of the code, but would never open up the source code to the general public.
The fact that Microsoft is even considering such a bold step--and that many in the industry think it may go a long way toward shoring up developer support--is a dramatic indication of the struggles the company has faced trying to find a niche for the scaled-down operating system.
For instance, Microsoft has fought bitterly and publicly against any attempt to open up the source code to the desktop version of Windows. Because the Windows source code is considered the "jewel in the crown" at Microsoft, the company has fought efforts to release the proprietary information as part of a settlement of the landmark antitrust suit filed against the software maker by the U.S. Department of Justice.
"If you asked me about opening up (desktop) Windows source code, I'd say no stinking way," Arrington said. "It's the foundation of everything they've built."
But unlike the desktop version of Windows, Windows CE has failed to gain market dominance--or even prominence.
Although Microsoft positioned Windows CE as all things to all devices, analysts say the one-size-fits-all mentality may have resulted in software optimized for nothing. In the handheld space, Windows CE has failed to make any significant inroads against market leader Palm. And embedded appliance makers have largely shunned CE because the operating system lacks true real-time capabilities, analysts say.
Windows CE suffered another implicit blow earlier this month with the unveiling of the X-Box. The game console, coming in 2001, will use an operating system based on Windows 2000. Developers and analysts said Microsoft went with Windows 2000 because Windows CE wasn't robust enough for such tasks and Windows 98 took up too much memory.
There is certainly precedent within Microsoft to steeply discount, or give away, products that are struggling in order to build market share. The company's decision to give away its Internet Explorer browser to chip away at Netscape's Navigator market share was a cornerstone of the antitrust suit.
"They certainly don't need the money, and they've done weirder things, like giving away their browser," Arrington said. "They'll give away things when if it gives them an advantage or puts someone out of business."
Like Internet Explorer before it, Windows CE could benefit from discounted or free distribution. Companies building low-cost, limited-function appliances and devices may not be able to afford licensing fees and thus would not even consider using Windows CE to power their applications.
"Windows CE is more expensive than the display, the batteries and the processor combined," said Doherty.
But these types of low-cost appliances and devices comprise a small percentage of Windows CE usage, so it's unclear how much benefit will really come from giving away CE to such a small market. Most of the better known Windows CE products, including Pocket PC and Microsoft TV, would not be affected by the pricing change, because they include extra applications and technology.
"This isn't going to solve all their problems, but it may keep existing developers and attract some new ones," Doherty concluded.
News.com's Jim Davis contributed to this report.