The feature, known as Smart Tags, would strengthen Microsoft's ability to tie its newest applications and operating systems to its own Web sites or others that it favors, including those that charge fees.
"This is another example of Microsoft integrating Internet content into the OS that could benefit them for Internet services," said Gartner analyst Michael Silver. "This is exactly like what Microsoft did in the past with the bundling, where they're leveraging what they have on the desktop into another market where they don't have dominance."
Redmond, Wash.-based Microsoft introduced Smart Tags with Office XP, which the company launched on May 31. But the software maker also is testing Smart Tags in the version of Internet Explorer 6 included with Windows XP.
On the one hand, Smart Tags, which are created using Extensible Markup Language (XML), are very handy. In Word 2002, for example, typing a person's name brings up a Smart Tag, appearing as a square with an "i" inside, allowing a user to pull down an optional menu. From that menu, the user can execute from within Word a number of Outlook 2002 features, such as bringing up contact information or sending the person e-mail.
But Smart Tags also can be used to access content on a corporate intranet or out on the Internet. Typing a stock symbol in an Excel 2002 spreadsheet offers up a Smart Tag that links to company or stock information on Microsoft's MSN MoneyCentral Web site. This latter function, connecting to the Web, is the main use of Smart Tags in Windows XP.
This aspect of the forthcoming operating system bears a resemblance to Microsoft's integration of Internet Explorer with Windows 95 and 98, according to Silver and Guernsey Research analyst Chris LeTocq. But it goes further than that earlier effort: In the past, Microsoft focused on tying the operating system to the Web through the browser.
"Now they've extended that to the applications as well," LeTocq said.
An exclusive for Microsoft
What's worrisome to the analysts and others is that Smart Tags tie Web content exclusively to Microsoft software, in this case Office XP and Windows XP. While Shawn Sanford, Microsoft's group product manager for Windows, emphasized anyone is free to write Smart Tags, they still work only from new versions of products where Microsoft has more than 90 percent market share.
"This gives Microsoft some powerful leverage," LeTocq said, particularly since the company can use its products to redirect users to MSN Web properties and eventually sites "with premium paid services." The test version includes Smart Tags for sports, stock and university information.
The linkage bothers Silver. "Wouldn't that be something?" he said. "You spend millions of dollars designing a Web site, and Microsoft has a Smart Tag that sends (users) to one of (Microsoft's) own sites."
But Peter O'Kelly, an analyst with the Patricia Seybold Group, sees things differently. "Yes, people should go into this with eyes open for what they're working with, but I don't think there's any nefarious plot," he said.
For consumers and businesses, Smart Tags offer some enticements, O'Kelly said.
"There are a lot of possibilities for data retrieval, and if you make custom Smart Tags with Office, they're automatically going to work with Internet Explorer," he said.
A content provider, for example, could write a Smart Tag to a legal database that would be retrieved based on keywords, such as "capital punishment," in a Word 2002 document or found on a Web page in Internet Explorer 6.
But one shortcoming of Smart Tags is that the content is not dynamic. Accessing Smart Tags for stock information, for example, downloads static code to the desktop. "You want to refresh the list of stock tickers, you've got to go do a refresh someplace. So the usefulness is limited," LeTocq said.
The risk in downloading code
The Guernsey Research analyst also warned of the security risk of downloading non-Microsoft, third-party code into an application or Internet Explorer 6.
"In much the same way for deployers of Office XP, make sure you have a good understanding of control of your desktop security, because there are going to be people marketing downloadable code to your users," he said.
Sanford insisted that Smart Tags are safe. "It's not like people are downloading executables here," he said. "This is fairly benign stuff."
While Microsoft calls the operating system version Smart Tags for Windows XP, it really works only with Web content, O'Kelly said. "It's not universally available through the interface," he said. "It's not like it works with other applications. This is Internet Explorer 6."
For now, Microsoft has limited Smart Tags to Office XP and Windows XP. Sanford couldn't say whether Smart Tags would appear in Internet Explorer 6 for other operating systems. "I would have to find out if that architecture could (work with) the older Windows clients," he said. "Right now it is only in Windows XP."
Smart Tags did not ship with Windows XP Beta 2, the test version now in wide distribution. But Microsoft included the feature in later beta builds, including a new one available this week with the Windows Messenger Internet communications console. Smart Tags will be included in the first Windows XP release candidate expected later this month, Sanford said.
Microsoft plans to launch Windows XP officially on Oct. 25.