Microsoft Previews New Consumer Version of Windows

By Scott Hillis

REDMOND, Washington (Reuters) - Days after a federal judge declared Microsoft Corp. (NasdaqNM:MSFT - news) an abusive monopoly, the software giant is giving the world a sneak peek at the latest consumer version of its Windows operating system, which boasts more Internet and multimedia features.

The latest test version of Windows Millennium Edition, also dubbed Windows Me, will be shown off to user groups around the country on Saturday, and shipped to computer makers and sellers next week for testing, Shawn Sanford, group product manager for the consumer Windows division, said in an interview.

Windows Me is scheduled to go on sale in the second half of this year, possibly around the holiday season, Sanford said.

Windows Me is the first significant update to the consumer platform since Windows 98 debuted two years ago, but is not a radical overhaul of the operating system that runs more than 80 percent of PCs in the world.

Instead, with an eye on the booming market for digital entertainment, Microsoft has bundled in new tricks like a fancy media player that can record, store and play CDs, digital songs downloaded from the Internet, and video.

``We looked at what do home users need to do, what do they want to do, and what are the trends?'' Sanford asked. ``This is kind of a snapshot of things that will come down the road. These are really good starting points to the future.''

Such media software takes clear aim at rivals like Seattle-based RealNetworks Inc. (NasdaqNM:RNWK - news), whose RealPlayer and RealJukebox products are widely used but face increased competition from beefed-up Microsoft offerings.

Observers have said tying such software to the operating system might raise the same issues that landed Microsoft in hot water with the U.S. Justice Department after it bundled its Internet browser software with Windows to try to snatch business away from rival Netscape.

A federal judge ruled on Monday that Microsoft abused its monopoly in PC operating systems to harm rivals, notably Netscape.

But Microsoft spokesman Jim Cullinan said the company was confident that its appeal of the ruling would support its right to include new features in Windows.

``The tying issue will be resolved by the appellate court and we are very confident that Microsoft's decision to add features and functionalities to Windows has been great for consumers, developers and our economy,'' Cullinan said.

``We must be free to innovate and improve our products or else we won't be able to compete. The government and our competitors may want that but consumers and the marketplace do not,'' Cullinan said via e-mail.

Other new Windows features include a suite of tools to let users edit video recordings and put them up on the Web, echoing a move by Apple Computer Co. (NasdaqNM:AAPL - news) to add such software to its popular iMac line of consumer-friendly computers.

``If you think about why people want to take videos, it's not just to take videos but to share them.'' Sanford said. ''What we are trying to do with MovieMaker (software) is truly expose digital video to the masses.''

On the utilitarian side, Windows Me will make it easier to set up home networks and connect gadgets like DVD players, televisions and cameras to the PC.

Citing a growing number of homes with two or more PCs, Sanford said, ``Home networking is growing rapidly right now. It's been around a long time but it's never been easy.''

Windows Me will also offer relief for anyone who has wasted hours trying to fix stubborn bugs on their computer.

The system will take ``snapshots'' of the system at regular intervals, so if the computer gets bogged down with technical gremlins, it will let a user restore the machine to one of those earlier, healthy states.

Windows Me will be the last consumer platform based on the dated DOS technology. There was speculation that the next version of Windows would be built on the more stable NT code that Microsoft's business platform, Windows 2000, uses.

Sanford said an NT-based consumer platform, code-named ''Whistler'', was in the early stages of development as engineers tried to figure out how to combine the reliability of NT with the compatibility of consumer Windows, which can support things like games and multimedia better than NT systems.

``Millennium Edition is definitely a step in the process we've always had in the goal of getting all the operating systems on to a common code base,'' Sanford said.

Shares in Microsoft, which were battered in the wake of the judge's ruling, rose 3 ^1/16 to 89 ^1/16 in trading on the Nasdaq on Friday.