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Desktop Wars, Part II: Microsoft Says Not So Fast to AOL

Microsoft Corp. has thrown its first counterpunch in the great desktop slugfest brewing between Microsoft and America Online. Last week, AOL, responding to a court-pressured decision by Microsoft to allow computer manufacturers more flexibility in what icons they place on their "out of the box" machines, announced a deal with Compaq Computer Corp. that made AOL the exclusive Internet service provider icon on its machines' desktops.

Not so fast, Microsoft is now contending, pointing out the fine print in its OEM deal for the rollout of its Windows XP operating system this fall. According to Microsoft, any OEM placing an ISP icon other than Microsoft's on a desktop must also place an icon for the Microsoft network on the desktop. Unlike AOL, Microsoft does not plan to pay for the valuable desktop space.

According to Microsoft, the Redmond, Wash.-based company originally planned to require manufacturers shipping pre-installed Windows XP on their machines to do so with a clean desktop. Under the original agreement, Microsoft would limit exposure to its MSN service in the start menu. Other services were free to buy or negotiate a spot on the start menu.

But in late June, the U.S. District Court of Appeals upheld part of the lower court's ruling that Microsoft's contracts with OEM's illegally limited the distribution of third party browsers. Microsoft countered by offering a new "flexibility agreement" allowing OEMs more latitude on how they configure desktops.

The Dulles, Va.-based AOL, the wholly-owned subsidiary of the AOL Time Warner , immediately jumped into the fray, offering manufacturers an extensive deal that includes $35 bounties to the manufacturers for users who sign up for AOL service through an icon placed on the manufacturers desktop. A day later, Compaq and AOL announced their deal.

Under the current AOL-Compaq agreement, only AOL and CompuServe Interactive Services, which is also owned by AOL Time Warner, would have featured desktop icons on Compaq desktop and notebook machines. MSN would be limited to the start menu.

A Compaq spokesman said the company plans to continue to its plans with AOL since it has not heard from Microsoft.



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