Consumers are just getting their first look Windows XP, but that hasn't stopped Microsoft from preparing the first major update of the new operating system. Microsoft spokesman Jim Cullinan said that starting on 25 October, Microsoft plans to make available an upgrade to Windows Messenger, the communications console delivering instant messaging, videoconferencing and Internet phone calling, among other features. Windows XP is already available on PCs, but the boxed version comes out on 25 October. The enhanced version of Windows Messenger packs new features kept under wraps during XP's development, including the first clear ties to Microsoft's forthcoming .Net software-as-a-service strategy. The rapid evolution of Windows Messenger underscores two basic challenges for Microsoft. One, Microsoft is under pressure to come out with an operating system with upgrades compelling enough to get people to upgrade their PCs. Second, and just as important, Microsoft's dominance on the desktop is being challenged by AOL Time Warner and Yahoo!. Their competing IM programs mean another brand sits on the desktop, a situation that sets off alarms in Redmond. "In the same way there was a browser war, there is going to be an IM client war," said Guernsey Research analyst Chris LeTocq. Already, Windows Messenger benefits from being integrated into Windows XP. The ties to .Net prepare Windows XP to use HailStorm, recently renamed .Net My Services, the initial services package to be made available to consumers. Among other online services, the updated Windows Messenger will support .Net Alerts, instant messaging subscriptions that can be used to track stocks, auctions and other dynamically changing online information. Kobe Falco, a computer consultant from Hillsboro, Ore., said he is troubled by the number of features bundled into Windows XP, even though he generally likes many of them. "I truly feel Microsoft is trying to ensure that they have a firm hold on their current dominance as it pertains to the PC market," he said. "XP takes one more notch out of the third-party software market, but I feel this is a natural progression. It's both good and bad: good because it makes the individual's computing experience much easier, (but) bad because it does tend slowly to kill off the competition." For consumers, Microsoft plans to serve up a virtual smorgasbord of features it hopes other companies will use to build on additional services. Windows Messenger's videoconferencing features could be used to enhance online gaming or distance learning. Software developers might also use the messaging technology's file-sharing and whiteboard features to build online collaborative applications. Groove Networks, which on Wednesday got a $51m investment from Microsoft, is integrating a version of its collaborative software with Windows Messenger. But for competitors, the integration of Windows Messenger into XP could make it more difficult to compete on a level playing field, particularly as Microsoft begins to deliver the first of .Net My Services to the new operating system. At one point, Netscape Communications' Navigator was the dominant browser. Microsoft's Internet Explorer raced ahead, however, partly because it integrated into Windows. Whenever consumers bought a PC or a copy of Windows, Explorer was effectively served up as the default tool for browsing. "It's pretty clear Microsoft plans to use Windows XP as an entry point for .Net," said Gartner analyst Michael Silver. Through .Net, Microsoft hopes to deliver a wide range of services and subscriptions to consumers, either directly or through third parties. The software giant would charge users, providers or both. Microsoft's .Net My Services is expected to rely heavily on instant messaging and Microsoft's Passport authentication service to deliver initially 14 services to a variety of devices, including PCs, handheld computers and cell phones. Supporting .Net Alerts will allow companies like McAfee to dispatch virus warnings to its customers or help eBay customers find out about certain auctions. New Windows versions of MSN Messenger also will support .Net Alerts, as well as the Mac OS X version due out next month. MSN Messenger 2.1 for Mac OS also will deliver .Net Alerts through Mac Office's notification feature. For .Net Alerts, "we're just an end point, just like your MSN is an end point or your cell phone," Cullinan said. "We think Windows Messenger is going to be a fantastic end point to those services." But Windows Messenger goes much further, preparing XP for additional .Net My Services services. As part of the enhanced user interface, Windows Messenger breaks content into tabs, some of which can be added and customized by third parties. The tabs are created using XML (Extensible Markup Language), a Web standard for exchanging data, and one of the key technologies behind Microsoft's .Net plan. Through a tab, eBay could offer access to auctions a person is following, while CNBC could deliver business news and stock information. "The IM vendors are concentrated on adding content to the IM environment because they realize they spend a lot of their time and a lot of their eyeballs on IMs," LeTocq said. Cullinan emphasised that "tabs is not necessarily a .Net service because it's not a service. If a third party wants to create a tab as an option for a user, they write that. It is simply a dynamic list of information that is updated as the user wants." But Directions on Microsoft analyst Matt Rosoff sees a clear opportunity for delivering additional .Net My Services features using tabs. "I'm speculating here, but I think the reason they're saying that (tabs and .Net Alerts are) different is because it might be important for My Services," he said. "You need to have this interface with a granular level of control about how companies are going to use your personal information." On Thursday, Microsoft plans to announce that it has signed on Call Serve, Deltathree, Dialpad Communications, Net2Phone and Telus to offer people with Windows Messenger the ability to make Net-based phone calls over their PCs. Those services also will be added to MSN Messenger, which will be available for download with the XP messaging client on 25 October. The companies are hoping Microsoft's influence will help jump-start the Internet telephony market, which has been highly touted but hasn't taken off as analysts have expected. Voice quality is still sketchy, and using a PC to make phone calls is still unnatural for those who grew up with traditional phones. With the recent demise of ZeroPlus.com, FireTalk Communications and Lipstream Networks, a partnership with Microsoft could help the remaining Net phone companies survive the trend toward consolidation. Some analysts believe Microsoft's effort is the last chance for the technology to reach the mainstream. "Microsoft has dabbled in Internet telephony before, but this is much bigger," said Yankee Group analyst Aurica Yen. "This will impact the market in a positive way because of Microsoft's reach. It gives the smaller Net telephony providers more exposure." Before the XP announcement, Net2Phone had cornered the market in instant messaging software for telephony. Net2Phone has been the sole Internet telephony provider for Yahoo Messenger, MSN Messenger and America Online, a Net2Phone spokesman said. Besides beefing up telephony features, Microsoft also has made changes to the Windows Messenger interface that make it more like other parts of Windows XP. Rather than forcing people to use functions from the menu bar, Microsoft has placed task-oriented options such as "I want to add a contact" or "I want to send an instant message." Other parts of XP, such as the search feature, use similar task-oriented lists for accessing functions. "Based on usability studies we've done, consumers really like it, and it really helps them complete the tasks they really want to use their PCs for," Cullinan said. Playing catch-up with AOL Instant Messenger, Yahoo Messenger and even MSN Messenger, Windows XP's messaging technology now offers a full range of emoticons--from traditional smiley faces to cats, coffee cups or luscious lips, among others. Another catch-up change is contact groups. Windows Messenger users will be able to organize contacts by groups such as co-workers or family. Microsoft also has extended to 150 from 75 the number of contacts, or buddies, accepted by the messaging client. MSN Messenger also supports that number. "We think that because of the new functionality, such as video chat, it's really going to draw the interest for the home user," Cullinan said. "So we expect them to have more (contacts), so to manage that many contacts, we're going to let them organize them in a better way." News.com's Wylie Wong contributed to this report. See the Windows XP News Section for the latest XP headlines. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the Microsoft forum. Let the editors know what you think in the Mailroom. And read other letters.