The week in review: For better or worse

Friday's settlement proposal would let computer makers swap in non-Microsoft applications on the Windows operating system, force Microsoft to reveal its server protocols, and curb backlash against companies that support competing products, among other provisions. The restrictions are relatively mild compared with earlier rulings that labeled the software giant a monopoly, sparking outcry from high-tech rivals.

Although Microsoft has cleared one hurdle with the proposal, it has not yet completed the legal course. State attorneys general, who are also part of the lawsuit, have yet to sign off on the deal. The states have the option of pursuing the case even though federal trustbusters have cut a deal. District Court Judge Colleen Kollar-Kotelly, the federal judge overseeing the case, gave the states until Tuesday to respond.

Aside from the proposal, which some are calling a victory for Microsoft, not everything is going the company's way. Its roadblock that kept competing Web browsers from MSN.com may have backfired. Rivals reported record traffic and download numbers this week, and a leading Internet authority has spoken out against the software giant.

Browsers including Opera, Mozilla, Amaya and some versions of Netscape had been unable to access MSN.com after an upgrade last week--although Microsoft's own Internet Explorer easily reached the popular site. But a week later, the smaller companies reported a flood of new customers stirred up by the controversy.

The change, which struck a dissonant chord with the software giant's well-known critics, also brought harsh comments from a key figure in the normally impartial circles of the Internet standards-making community. "Obviously this was a blatant attempt to use the leverage of some content to produce domination at the software layer," World Wide Web Consortium director Tim Berners-Lee wrote in an e-mail interview.

Separately, early results indicate marketing and rebates are doing little to boost sales of Windows XP, which trailed Windows 98 but ran ahead of Windows Me this week. Fewer than 300,000 boxed copies of the new operating system were sold in the first days after its release, according to a poll of retailers and mail-order clients about XP.

In all, pollsters said the final tally of first-week sales could be 20 percent to 25 percent lower than what Microsoft saw with Windows 98. Typically, OS sales peak in the first week and then fall off dramatically.

More bad news came to Microsoft by way of Amazon.com. The online retailer, which has switched to the Linux operating system, says it saved millions of dollars in technology costs last quarter. That disclosure could give other companies a model for cutting expenses in a stagnant economy.

In a filing with the Securities and Exchange Commission, the e-commerce giant said it was able to cut technology expenses by about 25 percent, from $71 million to $54 million. Linux proponents will likely adopt those figures to show savings can be found by using the open-source software rather than alternatives such as Unix and Microsoft's various Windows products.

In court
Microsoft was far from the only company holding its breath in a courtroom.

In a potentially serious setback to the movie industry's attempt to rid the online world of DeCSS, an appeals court overturned an earlier order that barred hundreds of people from publishing the software's code. Posting the code, which can help break through copy protections on DVDs, is just like publishing other types of controversial speech and is protected by the constitution, the appellate judges said.

The decision, while not a final one on the legality of the software program, marks a severe blow for the movie industry's legal battle against online threats. Hollywood studios have contended that software that can break through their anti-piracy techniques is simply a tool and does not warrant free-speech protections.

America Online also hit a legal stumbling block, when it was ordered to temporarily stop distributing a recent version of its popular service, AOL 6.0. A federal judge said the software likely violates copyrights for computer code used to play back MP3 files. If upheld, the ruling could force the AOL Time Warner division to pay millions of dollars in damages, marketing expenses, and costs related to retrieving or altering existing copies of AOL 6.0.

At issue are software copyrights owned by PlayMedia Systems. AOL subsidiary Nullsoft holds a software license from PlayMedia for use in its Winamp MP3 player, but the court found AOL may have gone too far by including the code in a different media player bundled with AOL 6.0. The ruling does not affect AOL 7.0, a new version of the software released two weeks ago.

Meanwhile, in a case that could signal an intensifying turf war between Amazon and eBay, a federal court has dismissed a suit brought by the online retailer against a former employee. A federal court cited jurisdictional issues in dismissing Amazon's suit to prevent a former executive from taking a job with eBay. The e-tailer filed suit against its former international Chief Financial Officer Christopher Zyda in U.S. District Court, maintaining that Zyda violated his employment contract when he jumped to eBay earlier in the month.

Changes in the airwaves
The communications industry is moving in a direction that will likely please--and irritate--consumers.

A proposed $25.8 billion deal between DirecTV parent Hughes Electronics and EchoStar Communications, which would create a satellite TV company bigger than any cable TV rival, is already fanning the flames of consumer discontent. Allowing the two biggest satellite providers to merge would halve that competition at a time when the cable industry itself is in the midst of consolidation, and new businesses such as broadband Internet and phone services are just beginning to reach consumers, critics say.

But consumers will likely cheer Cingular Wireless, America's second-largest wireless carrier, which is switching to the world's most popular wireless telephone technology: GSM. Cingular Wireless will undergo an estimated $3 billion renovation of its current wireless network so it can offer its customers a phone network that will be 30 times faster. The prevailing standard for the technology switch will be GSM (Global System for Mobile Communications), which is now in an estimated 70 percent of the world's wireless phone networks.

The move is another sign of the growing dominance of GSM and its possible approach as the world's primary wireless telephone standard. By most accounts, a half-billion cell phone customers, mainly in Asia and Europe, use GSM networks to make calls.

GSM isn't the only big business in Europe and Asia. Nokia estimates it will make billions selling ring tones by the end of 2005, and more than $300 million in ring tones were sold in Japan last year. But the industry is still relatively unregulated.

Now, the same forces that took on file-swapping companies Napster and MP3.com are quietly setting their sights on what some regard as the next digital copyright battle. The American Society of Composers, Artists and Publishers, which sells the performance rights for hundreds of thousands of popular songs, has begun trying to weed out ring-tone sellers working without ASCAP approvals.

New to the game
In an effort to boost sagging sales, some computer makers launched new promotions and products to attract new customers. Compaq Computer launched an aggressive new promotion: Buy an Evo notebook, an Evo desktop or an Armada notebook and get a Compaq iPaq 3650 handheld for free. The handheld, which has a color screen and 32MB of memory, sells for $399 on Compaq's Web site.

Until now, Compaq's offers had been limited to free shipping, free memory upgrades and such. "This is a decent offer," one analyst said. "This is definitely an improvement."

Meanwhile, competitor Dell Computer is launching a prebuilt PC for $599 in hopes of nabbing computer buyers who traditionally opt to shop at retail stores. Dell sells computers directly to consumers and is known for its build-to-order strategy. The SmartStep features a 1GHz Intel Celeron chip, a 20GB hard drive, 128MB of synchronous DRAM, a CD-ROM drive, a 15-inch monitor, the Home edition of Microsoft's Windows XP operating system, and six months of America Online service.

Even Gateway is getting into the act in an effort to avoid flat sales. The company began bundling flat-panel displays as a standard feature with several models. The move is designed to distinguish Gateway's computers from rival products and to avoid direct price comparisons with competitors such as Dell.

For $999, Gateway is offering its 300SP system with a 1GHz Intel Celeron chip, a 20GB hard drive, 128MB of memory, a CD-rewritable drive, and a 15-inch flat-panel display. The same system with a 17-inch cathode-ray tube (CRT) monitor is still available for $200 less.

Also of note
Microsoft told members of its free Hotmail service that their e-mail accounts will be closed if they do not use them at least once a month...A new feature on eBay billed as a way to ease transactions has instead rankled many sellers, with some threatening to leave the online auction site...A patent held by a little-known programmer from New Jersey may complicate--at least temporarily--the grand visions of Web services touted by titans such as IBM, Microsoft and Sun Microsystems...Opponents of junk e-mail are claiming victory in a high-profile spam case this week, saying recent action in the U.S. Supreme Court effectively grants states the right to rein in spammers in the absence of federal anti-spam laws...As U.S. airports begin installing face-recognition systems to thwart terrorism in the wake of the Sept. 11 attacks, civil rights activists are rushing to decry the technology as ineffective and invasive...A $20 billion stimulus package in the works by Senate Democrats may include $1 billion to bankroll an information-technology fund.

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