preloads  1. Microsoft's "no-fly" zone in the personal computer market. Redmond claims the right to destroy any competitor found in this restricted space and to punish or even kill the offending OEM.

In the beginning

The original IBM PC, launched in 1981, had no preloaded software. How could it? It had no hard drive, it came with either a cassette tape drive or 360KB floppy drives. Buyers of the original PC had a little bit of choice for their OS. IBM offered a choice of PC-DOS, USCD (p-system) Pascal, or Digital Research's CP/M.

Since CP/M for the 8086 wasn't even available at the time of the launch, it really came down to the first two. PC-DOS, the version of QDOS that Microsoft had purchased in order to get the deal with IBM to provide the operating system, had been thoroughly vetted and debugged by IBM. Given that it could be had for $39.95, much less than p-system, it was the logical choice.

MS has been preloaded since the dawn of the XT

When IBM released the XT in March of 1983, it came with a Winchester harddrive and DOS 2.0. The monopoly on preloads began on day one and has continued unabated to this day. It is impossible to overestimate the value of Microsoft's death-grip on the preload market. Well over 90% of all copies of Windows sold are delivered to customers on their new PC.

One immediate consequence of the Microsoft monopoly on preloads is that it forms a highly effective barrier-to-entry to the desktop market itself. I've often felt like the W. E. DuBois of personal computing because of my belief that only 10 to 15 percent of all personal computer users were competent enough to install an operating system.

I don't mean OS/2, or Linux, or BeOS in particular. I mean operating system. Any operating system. Since nothing but Windows gets preloaded, nothing will ever displace Windows on the desktop. Pundits have long credited slick marketing and touchy-feely MS sensitivity to user wants and needs as an explanation for their dominance. Hogwash. The real explanation is the death-grip MS has on the preload market.

In the 90s

Let's take a look at what happened during the 90's for an example. OS/2 enjoyed wide popularity among both users and parts of the trade press prior to the release of Windows 95. Part of OS/2's popularity at the time came from rampant unhappiness with Windows 3.1. A lot of Windows users were simply fed up. OS/2 offered an alternative to Windows and its penchant for locking up and causing the loss of work at the worst possible moments.

IBM preloaded OS/2 on its own machines in 1994 and 1995. Overseas vendors like Vorbis also agreed to preloads. OS/2 marketshare, buoyed here only by those who installed the OS themselves, or bought an IBM PC with it preloaded, were estimated to be as high as 15 percent.

According to PC Magzine regular retail software sales reports, OS/2 was actually outselling Windows at retail. If consumers had also had a choice on the showroom floor to buy their new Packard-Bell or Compaq or Dell with OS/2 preloaded, the OS/2 market share could have grown much larger. But they never had that choice, and when Win 95 was finally launched the preload market was more firmly in Redmond's control than ever before. IBM itself had to curtail OS/2 marketing in order to even a license to preload Win 95, without which it could not have stayed in business.

As it was, the IBM PC company never really recovered from being kept out of the Win 95 market until 15 minutes before the product launch. Microsoft was demonstrating not only that it knew where its power came from, but that it knew how to exercise it.

Redmond was no longer content to use its clout over OEMs to prevent competitive platforms from gaining access to preloads, now it began in earnest to go after specific applications.

According to the Findings of Fact in the anti-trust trial:

"204. Although Microsoft's original Windows 95 licenses withheld from OEMs permission to implement any modifications to the Windows product not expressly authorized by Microsoft's 'OEM Pre-Installation Kit,' or 'OPK,' it had always been Microsoft's practice to grant certain OEMs requesting it some latitude to make modifications not specified in the OPK. But when OEMs began, in the summer of 1995, to request permission to remove the Internet Explorer icon from the Windows desktop prior to shipping their PCs, Microsoft consistently and steadfastly refused. As Compaq learned in the first half of 1996, Microsoft was prepared to enforce this prohibition against even its closest OEM allies."

Indeed, Microsoft threatened one of its closest allies amongst the OEMs with the Redmonian Death Penalty, the loss of its license to preload Windows, if they dared to replace with MS browser with Netscape. Again, from the Findings of Fact:

"Microsoft sent Compaq a letter on May 31, 1996, stating its intention to terminate Compaq's license for Windows 95 if Compaq did not restore the MSN and Internet Explorer icons to their original positions. Compaq's executives opined that their firm could not continue in business for long without a license for Windows, so in June Compaq restored the MSN and IE icons to the Presario desktop."

Once in compliance with Microsoft's demands, Compaq was given "most favored nation" status among OEMs.

"234. In return for Compaq's capitulation and revival of its commitment to support Microsoft's Internet strategy, Microsoft has guaranteed Compaq that the prices it pays for Windows will continue to be significantly lower than the prices paid by other OEMs. Specifically, the operating system licenses signed by Compaq and Microsoft in March 1998 gave Compaq "[g]uaranteed better" pricing than any other OEM for Windows 95, Windows 98, and Windows NT Workstation (versions 4 and 5) until April 2000. Compaq's license fee for Windows is so low that other OEMs would still pay substantially more than Compaq even if they qualified for all of the royalty reductions listed in Microsoft's Market Development Agreements ("MDAs"). What is more, while Microsoft requires other OEMs to verify actual compliance with particular milestones in order to receive Windows 98 royalty reductions, Microsoft has secretly agreed to provide the full amount of those discounts to Compaq regardless of whether it actually satisfies the specified conditions. In addition to a guaranteed most-favorable price on Windows, Compaq has enjoyed free internal use of all Windows products for PCs since March 1998."

What's happening today?

Microsoft's most recent launch was the long awaited Windows XP. It is similar to the Windows 95 launch in several ways. For one thing, retail sales are disappointing. For another, that doesn't matter. The money is in preloads. As the following quote from a ZDNetIndia.com story makes clear: "Retail sales are like gravy for Microsoft," said Howard Dyckovsky, an NPD Intelect analyst. "It helps them get their name out there and keeps them in front of the consumers. But the overwhelming majority is going to be on new computers or client licenses."

It's not OS/2 trying to find traction in preloads these days, it is Linux. Linux preload offerings overseas have been very successful. Preloaded Linux in India, Thailand, Malaysia, and China is a very popular choice. The big question is why isn't it being offered as a preload here at home. The answer to that seems to be that Microsoft doesn't want to see that happen.

Who says so? The Massachusetts Attorney General, for one. According to a story on Silicon.com (among other places), Massachusetts is investigating several incidents which violate the toothless settlement between MS and the DOJ at the end of the antitrust battle. The story says "These include whether Microsoft has retaliated against an unspecified computer manufacturer for promoting Linux and has signed unlawfully restrictive agreements with internet service providers."

Nobody seems to know what that OEM might be, but I do have a hunch. I won't reveal my source because I think it could harm them if I did. But I will say that several months ago I was tipped to an upcoming launch by IBM's PC people that would be of interest to me. When the big day finally arrived, however, it came not with a bang but with a whisper. I think that is because MS threatened IBM and they backed away from their original plan. IBM denies this.

In April, a new IBM PC (the ThinkCentre M50) was reported by Michael Kanellos and John Spooner on CNet to be available preloaded with Linux. A day or so later the story was "corrected" due to a "misunderstanding." According to the correction, Linux would not be preloaded, but large customers could special order it that way.

I asked IBM directly and the story changed again. Raymond Gorman of IBM told me in response to my query that "The new IBM ThinkCentre M50 PC is not pre-loaded with Linux. It is however, certified for Linux. That means we load the drivers, but leave it up to the customer to decide which version of Linux he/she prefers. As you know there are several versions of Linux from which to choose." Meanwhile, in India, IBM happily preloads Linux on its line of NetVista A30 desktops.

HP began its "People's Notebook" in Thailand earlier this year, but it wasn't until very recently that you could buy an HP preloaded with Linux here in the US. That momentous event makes the HP d220 preloaded with Linux available to American consumers via online purchase. HP tells me it takes a week or two to get the box from the date you order it.

I was curious if the HP offering was a faux-preload like those offered by Dell a couple of years ago. In those "deals," you ended up paying more for the Dell machine with a free OS on it than you did for the same hardware equipped with Windows. Industry insiders told me that is because you pay for Windows on every Dell you buy because Dell pays MS for every Dell they make. HP tells me, however, that the d220 with Linux inside is about $50.00 less than the same machine with Windows preloaded.

Conclusion

We appear to be about half-a-step closer to having the freedom to choose our platform of choice here in the United States than we've been in the past. You still can't walk into BestBuy or CompUSA and find tier-one OEM machines running Linux on the showroom floor, but at least you can go online and purchase one from HP. Or if you are a large corporate customer, you can "special order" a bunch of them from IBM.

You can buy Linux preloaded at Wal-Mart. At least Wal-Mart online, not yet in their stores. You can also get it preloaded at hundreds of mom-and-pop stores across the country, or order from smaller "specialty OEMs" online.

But the big guys represent more than 90% off all PC sales, and they are still religously Microsoft only. Why? Nobody that knows the answer to that question is willing to talk about it. Not yet, anyway. The battle for preloads will not be won quickly or easily. It's too important to Microsoft - not just to protect the monopoly but to expand it as it has done with MS Office, MS IE, and more recently for streaming media - to simply let it slip away.

Resources:

History of MS-DOS

DOJ vs Microsoft Findings of Fact

Windows XP hot or not

Microsoft agreement lacks teeth, Massachusetts says

Microsoft investigated over Linux-bashing

IBM unveils Linux desktop in India

IBM thinks business for new PCs