Yet for all of Microsoft's critics, the legal assessment of its competitive practices remains anything but clear, and some antitrust experts even give the corporation good odds to win its pending appeal in federal court. That may encourage Microsoft to push harder with plans to tightly integrate its instant messenger and other software with the XP operating system. Microsoft spokesman Jim Cullinan concedes that the integration of an instant messaging technology within Windows XP has some parallels to the company's approach in integrating Internet Explorer with Windows 95. But he offers no apologies. "It's about business decisions and technology," Cullinan said. "When Netscape was on top of its game, it tried to build a Java browser and 50 other things that didn't work. Those were business decisions that had nothing to do with Microsoft. In this case, AOL was the leader in instant messaging for years and did nothing with it." Microsoft could be further emboldened by contract negotiations with AOL involving the new operating system. As it has with previous Windows versions, AOL would prefer its software to be packaged with XP. But in this tenuous relationship, it has always been suggested that Microsoft has the upper hand. An AOL spokesman downplayed the importance of the talks. "If we don't come to a deal, then that's fine," he said, adding that the company is confident it can compete on the merits of its products. Analysts were more sceptical. "Long term, these negotiations matter. Windows XP effectively embeds many components of the online service directly into the operating system," Internet analyst Henry Blodget wrote this week in a report for Merrill Lynch. "It would obviously not help AOL over the long term if these features gained a significant amount of traction." Indeed, the timing of this week's XP announcements appear more than just coincidence. But history has shown that Microsoft rarely bluffs when it senses even a hint of a threat to its operating system franchise. The reason for the software empire's paranoia is simple: Microsoft knows how easily a leader can be toppled because that's precisely what it did on its way to the top of the operating system market, first with IBM and later with Apple Computer. In a telling 1996 interview that remains insightful today, Microsoft's Steve Ballmer explained why his company seemed obsessed with Netscape's Navigator browser at the time. "Let me tell you a story. Once upon a time there was a piece of software that was an extension of an operating system, and it had a nice little user interface and it had some programming interfaces and people kind of liked it, and over time they built on top of it. One day, the thing that it was built on top of wasn't all that important anymore," said Ballmer, a close friend of Microsoft chairman Bill Gates, who would later become chief executive. "I'm telling you, of course, the story of Windows 95, Windows and DOS. And when we tell the story about what's happening today with browsers ten years from now, I want the thing that replaces Windows to be Windows." To understand the motives behind HailStorm, one needs only to substitute messaging for browsers in that statement. The communications software is but the latest potential encroachment on Windows, and for more than a decade Microsoft has had one primary goal: protect the operating system's dominance at all costs. If the company wants to make sure that Windows is the first thing a person sees and uses when turning on a computer, it is understandable why Microsoft is so aggressively competitive. In case after case, the company has thwarted or slowed the success of technologies that could conceivably sit on top of the operating system, much the same way Ballmer said Windows did with DOS: word processing (Corel's WordPerfect), calendar (Lotus Development's Notes), email (Qualcomm's Eudora), directory services (Novell's NDS), Web browsers (Netscape's Navigator), audio and video streaming (RealNetworks' RealPlayer and Apple's QuickTime), and, of course, competing OS products (Apple's Mac and IBM's OS/2). Nor has Microsoft been shy about using its considerable war chest to buy successful competitors such as Hotmail or purchase companies just to keep their technologies out of the hands of rivals. In 1996, Microsoft became so concerned with Sun's Java programming language that it sought to acquire or partner with several companies to "take mind share away from Sun", according to internal Microsoft documents. Among those companies were Metrowerks, Apple, Hewlett-Packard and Fujitsu. AOL is well aware of this track record and does not want its Instant Messenger to be the latest entry on any listing of the software company's conquests. That is why it has gone to such great lengths to combat Microsoft on this front, going so far as to block repeated attempts by the architects of MSN Messenger, Yahoo! Messenger and other rivals to connect their subscribers with AOL members through the various communications networks. Some in the industry believe that the controversial blockade, which drew criticism as an affront to the open philosophies that founded much of the Web, may have backfired on AOL by limiting its growth potential. Market research commissioned by Microsoft indicated that the gap between MSN Messenger and AOL Instant Messenger narrowed significantly last year. At the same time, instant messaging has become increasingly important to the HailStorm project and the company's overall .Net initiative, which aims to make all Microsoft software and services available through the Web to any type of computing device, handheld organiser or mobile phone with the company's Passport security technology. The initiative is one way Microsoft hopes to maintain the dominance of Windows as the world moves beyond the traditional desktop PC for its technological needs. Moreover, Microsoft intends to charge for this service, making it a major test to determine whether people will be willing to pay to use the Web. All online companies are watching the experiment closely for clues to their own future now that advertising revenues alone have proven insufficient to sustain many businesses. "The trend is towards charging for services as opposed to giving consumers a free lunch," Gartner's Smith said. "HailStorm and Passport make that easier by offering a standard for enabling transactions. That will help accelerate the adoption of payment technologies such as single sign-on and micropayments." Talk like that is exactly what Microsoft wants to hear. After years of losing billions of dollars on various online services, executives at the company compound outside Seattle are more than ready to start making some money. And if that can be done at the expense of AOL, it will be that much sweeter. As group product manager for the Microsoft Network, AOL's main but distant competitor in the dial-up Internet access market, Bob Visse is one such executive. He is spearheading MSN's effort to lure disgruntled subscribers from AOL since the service raised its monthly rates. "The general rule that we're trying to follow is to add value on top of what people are getting for free," Visse said, such as multiplayer games, music services and video on demand, as well as the type of enhanced video and voice communication envisioned through instant messaging. "We will introduce paid-for services on MSN." News.com's Mike Yamamoto and Evan Hansen contributed to this report. Take me to ZDNet Enterprise Have your say instantly, and see what others have said. Click on the TalkBack button and go to the ZDNet News forum. Let the editors know what you think in the Mailroom. And read what others have said.