Microsoft and AOL square up over desktops

Microsoft may soon be regarding Compaq's exclusive desktop deal to promote AOL's internet service, rather than its own MSN portal, as simply the thin end of the wedge.

Several PC vendors are now in fierce negotiations with competing software companies and service providers which want to place their applications on computer desktops or start-up menus, the first areas on the PC that users see.

Microsoft and AOL, two of the main protagonists in the battle for the desktop, could also be heading for a showdown over digital cameras.

AOL is believed to be lining up deals with nine computer vendors, offering them fees based on whether, and for how long, the PC buyer signs up for its services. Others touted as having entered negotiations with PC vendors include Real Networks, AltaVista and US internet service provider Earthlink.

The discussions have become possible after a US court ruled that Microsoft could not use its dominant position as a supplier of operating systems to dictate the composition of their desktop to PC vendors. However, lead times mean that vendors have only a month to complete deals before Windows XP's scheduled 25 October launch.

Analysts said the deals could provide a much needed chunk of extra income for computer makers facing a slumping market and a price war.

Separately, AOL and Microsoft unveiled competing digital photo services this week, and AOL's partner Kodak complained that its photo software was being sidelined by new features in Windows XP.

AOL and Microsoft are now set to clash on instant messaging, media players, desktop icons as well as digital cameras, and could also end up in a battle to control US broadband internet connections.

Analysts predicted back in June that the pair could end up at war over new internet markets following the collapse of talks to renew their highly successful co-bundling for the launch of Windows XP.