Windows 7 E: Microsoft's sensible response to Europe

Yesterday, in a Windows 7 for Developers blog post, Microsoft revealed more details about the special version of Windows 7 for the European Union. The company isn't ripping out Internet Explorer 8 so much as using the "Turn Windows on or off" tool to disable the browser. For all practical purposes, IE8 won't be available to end users or third-party applications. However, Internet Web Applications components will remain.

About 30 days ago, in a brilliant solution to a troubling problem, Microsoft announced plans to release an "E" version of Windows 7 sans the browser. Windows 7 E will be exclusively distributed in the EU, where the European Competition Commission is nearly ready to officially rule that Microsoft's bundling Internet Explorer with Windows is an anticompetitive act. The European Commission is currently entertaining remedies, which are rumored to include a proposal for presenting Windows users with a choice of browsers to set as default during installation.

Microsoft's decision to offer Windows 7 E in Europe makes loads of sense. The company made a tough call, but a good one. The European Commission and Opera can complain, but Microsoft is thinking business, which is the right priority.

I'm not defending Microsoft's tactic of bundling -- in legal parlance tying -- Internet Explorer to Windows, nor am I reproaching it. I encourage people to stake out their opposing positions in comments. But I do commend Microsoft's pragmatic solution -- and one that clears the way for Windows 7's worldwide launch.

European regulators can whine and complain about how oh-so terrible is IE, but that contention ignores that:

• Many businesses depend on Internet Explorer
• The new browser war is on mobile phones, where neither Windows nor IE is dominant
• Desktop browser competition is fiercer than ever (Firefox usage surpasses IE in some European countries)

Lots of European businesses, consumers and developers will be sorry to lose IE from Windows. Some will feel slighted, like they're being treated second rate compared to people in every other region in the world. Surely there will be backlash -- some pointed at Microsoft for making the decision, but perhaps more to European regulators for creating the situation.

Windows 7 E is a brilliant business maneuver, because:

• Microsoft can comfortably plan on launching Windows 7 worldwide on October 22nd, regardless of the EC's remedy.
• The solution is reasonable enough that the European Commission will have a tougher time imposing a tougher, alternative remedy.
• By shipping IE on a separate disc, Microsoft also can offer Windows Live Essentials and other software -- all technically unbundled but easily accessible.

Each of these business goals/benefits needs further explanation.

Windows 7's Launch. Microsoft is most vulnerable to competitor interference right before launching a new operating system. The company also is most likely to make concessions about Windows in the months before launch. In early 2001, Kodak complained to the New York attorney general about Windows XP's new, bundled photo features. At that time, Microsoft hadn't yet settled its US antitrust case and was under strict scrutiny form the Justice Department. Microsoft made changes that allowed Kodak's software to be a default option. Microsoft made other concessions -- some of them preemptive -- such as ceding control of desktop icons, ahead of Windows XP's launch.

Competitors also circled around Windows Vista, pointing fingers and crying out for Daddy Trustbuster to do something about Microsoft. Google complained about Internet Explorer 7 search defaults, which the Justice Department decided were flexible enough -- certainly as much as Firefox. Nevertheless, Microsoft modified search after Google also complained to the European Commission. Security competitors/partners also called on the EC, leading to other Windows Vista changes.

The newer situation is considerably more problematic for Microsoft, because the European Commission is likely to reach a decision after Windows 7 is certified gold and before its release to volume-licensing subscribers on September 1. The EC is taking suggestions from many parties, including Microsoft competitors, now.

Limiting EC's Options. Even if the European Commission demands more or something different, Microsoft has established a framework that should allow a stay of any remedy for appeal. No one should doubt Microsoft's primary objective: The simultaneous worldwide launch of Windows 7 in October. Last month, Dave Heiner, Microsoft's deputy general counsel explained in a blog post:

"The worldwide launch of Windows 7 is fast approaching, but a pending legal case raises concerns about the sufficiency of competition among the Web browsers that are available to Windows users in Europe...We're committed to making Windows 7 available in Europe at the same time that it launches in the rest of the world, but we also must comply with European competition law as we launch the product...this is a big step for Microsoft. But we're committed to launching Windows 7 on time in Europe, so we need to address the legal realities in Europe, including the risk of large fines."

Microsoft's approach clears way for Windows 7's launch, while also drawing a line before the European Commission. But the EC can still sock Microsoft, because of the extent of IE8 removal and the ease with which it could be restored.

Competitive Landscape. Microsoft also unexpectedly is getting some help from Google, which last week announced plans to release Chrome OS for netbooks. Microsoft can argue that Windows 7 E removes the browser at a time when Google is preparing a browser-based operating system. Surely, given this potentially market-changing move, Microsoft can assert that it has offered the European Commission remedy enough.

Then there is Opera, which immediately and unsurprisingly complained about Windows 7 E. The EC's proposed plan would assure Opera free distribution with every copy of Windows sold in Europe. Microsoft's alternative actually gives nothing to competitors, Opera in particular. Taking something away doesn't give something instead. By the way, Opera filed the complaint that started the EC's browser investigation.

Microsoft is planning to ship separate application discs with Windows 7 E retail versions. By distributing CDs with IE and other Microsoft software, the company gets some bundling benefits without tying software to Windows. It's a brilliant business response to companies practicing competition by litigation.