Dell Computer Corp and Gateway Inc, the two largest direct sellers of personal computers, are negotiating with AOL Time Warner Inc. about Microsoft Corp's new Windows XP software.
Gateway is in talks to make America Online the preferred Internet provider on its computers when the new version of Microsoft's operating system appears in October, said Gateway spokeswoman Lisa Emard. America Online has been Gateway's preferred provider since 1999. Dell spokesman Bryant Hilton wouldn't describe the nature of its talks with AOL Time Warner.
America Online, the largest Internet service, is seeking agreements with computer makers for display on Windows XP. Talks with Microsoft failed to produce an agreement to add America Online's software to XP, the next version of the program that runs about 90 percent of PCs. America Online spokesman Kathy McKiernan declined to comment on discussions with PC makers.
"For a long time, Microsoft has been able to dominate what its desktop looked like with restrictive licensing agreements" with computer makers, said John Corcoran, an analyst at CIBC World Markets, who has a "strong buy" on AOL Time Warner shares.
"Those days may be over." A federal appeals court ruled in June that Microsoft abused its software monopoly. In response, Microsoft announced this month that it will allow PC makers to add any desktop shortcuts they choose for programs that run on XP.
Internet services such as America Online and EarthLink Inc.
have for years sought agreements with PC makers to feature their software in PCs. EarthLink has an alliance with Apple Computer Inc to display the third-biggest US Internet service on its computers.
Microsoft said America Online is seeking to pay computer makers to offer only America Online or its CompuServe Internet access to customers when they start their computers for the first time, instead of also offering customers the option to sign up for the competing MSN service in the initial setup.
"We don't think it's a good thing, hiding features from consumers," said Jim Allchin, Microsoft group vice president.
America Online's McKiernan said the company is only doing what Microsoft has done in past versions of the operating system.
America Online is bidding for the "exact kind of placement that Microsoft until now has used its monopoly power to take for free," McKiernan said.
She said America Online hasn't asked, and no computer makers offered, to remove Microsoft programs from the operating system.
"AOL is doing what it's always done, which is market itself aggressively," said CIBC's Corcoran.
"Microsoft has never had to pay for this placement. It could end up being reasonably expensive. Microsoft doesn't want to head down this slippery slope [because] once you have to pay one [PC maker], you have to pay others."
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