Windows 98 to be relaunched with new IE

As previously reported, Microsoft will bundle the operating system with Internet Explorer 5 and a collection of bug fixes and application updates known as a service pack under the Windows 98, Second Edition, name.

Windows 98 SE was announced this morning by Microsoft chairman Bill Gates at the launch of Internet Explorer 5.

"This is not a major upgrade like Windows 98 was," Gates said at the launch, which took place at the company's Redmond, Washington, headquarters. "It's not a dramatic change."

The next version of Windows 98 will be available this fall for $89, the same price as the first version of the operating system, Gates said. The Windows 98 service pack was targeted for release in the first quarter, so a fall release would be a significant delay. It is unclear whether Microsoft will release the service pack individually before Windows 98 SE hits stores.

The decision to release a second version of Windows 98 is a departure from Microsoft's method of updating Windows 95, and there are a number of opinions as to why the company is embarking on a new strategy. If customers think they are getting more than a package of bug fixes with the service release, one theory goes, they might be more willing to buy it or at least download it from the Net--which will reduce Microsoft's support costs.

Additionally, while Microsoft generally makes service packs available for free via download, users might be more willing to shell out $89 for what is being billed as an entirely new edition of the operating system. After its release, Windows 98 SE will also be loaded onto new PCs.

Other cynical onlookers have speculated that Microsoft is overplaying the significance of the new edition of Windows 98 to draw attention away from the delays which have hit Windows and Office 2000.

The service release has gone through several iterations and in the process has increasingly become larger and more complex. Microsoft initially broke the testing into separate groups: one to test the service pack for consumers, and one to test the new version of Windows 98 to be loaded by PC makers onto new computers. Later, the groups were reunited to test Windows 98 SE.

The service release has evolved from a collection of bug fixes and application updates to include the service pack for Internet Explorer 4, and then Internet Explorer 5. The later builds were unwieldy to download, and some testers complained that the release had become too large.

Windows 98, Second Edition will include:

• Internet Explorer 5
• Internet Connection Sharing
• Additional support for modem drivers
• Increased support for USB modems
• WebTV for Windows update
• Additional support for local area networks
• Security updates
•  Networking enhancements that will enable dial-up connections over ATM networks

News.com's Ben Heskett contributed to this report.