Microsoft has lost its grip on the ecosystem

Microsoft got where it is today through its influence over manufacturers. It no longer has the control it once enjoyed

Microsoft is the company everyone loves to hate. There are a number of reasons for this, but the greatest is the company's sheer dominance. Like a government, Microsoft takes flak because its presence is unavoidable.

This dominance is the product of Microsoft's influence over its partners, but Redmond is starting to lose its grip. At least three key manufacturers — of chips, PCs and handsets — in the ecosystem have wriggled free. Microsoft, used to leading others, is increasingly finding itself being led places it doesn't want to go.

The first sign came out of the 'Vista Capable' lawsuit, when previously confidential uncovered emails showed what Intel seems to have done to Microsoft just prior to the launch of Windows Vista. Intel wanted to stick its 915 chipset into new PCs and Microsoft wanted to do the same with Vista — the problem was, the 915's embedded graphics capabilities could not handle Vista's flashy Aero interface.

Nonetheless, Intel managed to convince Microsoft that 915-bearing machines should get the 'Vista Capable' sticker. Intel sold its chips, and Microsoft took a battering from users who quickly established that their new PCs could not handle Vista as promised.

Intel's low-powered Atom chipset has not helped Microsoft, either. Designed for the popular new breed of low-cost subnotebooks, the chipset is a very bad match for Vista, so — like the senior detective just days away from retirement in many a bad cop movie — Windows XP had to be called back into service for one last mission. Microsoft desperately needed to get rid of XP to boost sales of its unpopular successor, but this plan seems to have been foiled for now.

The Atom, of course, is a bet Intel made before the new subnotebook market was kicked off by Asus. When the laptop manufacturer meekly showed off its little Eee PC — originally intended to be an educational device — in early 2007, it did not expect the reaction it received: the device became instantly popular and spawned myriad competitors. Intel's bet looks like paying off in unexpected ways, while Microsoft is set to lose just as heavily. Microsoft must wish that the involuntary persistence of XP was its only problem in this market, but it's worse than that — like the first iteration of the Eee, most of these subnotebooks come with Linux-based operating systems.

Even though Microsoft has managed at least to get Windows onto many of the subnotebooks, all the devices thus far revealed come in both flavours, with the Windows flavour being either more expensive or...

... less highly specified than the Linux flavour. For many users, the choice will be simple, and it will be Linux.

Not content with introducing an entire generation to free operating systems through the Eee, Asus has now struck two deals with DeviceVM, the makers of a lightweight operating system called Splashtop. The deals will see Splashtop — under the guise of 'Express Gate' — embedded into all Asus's motherboards and many of its upcoming laptops. Splashtop uses a Linux stack and, because it is designed to be instant-on, it will dissuade many users from booting up their PC's main operating system — usually Windows. It's not even clear that Windows XP could be massaged into a Splashtop-style embedded configuration. The company has no answer to Linux's extreme configurability, a configurability that plays very well in a market where new niches for embedded, high-performance software are suddenly fashionable.

The picture surrounding Microsoft's handset play, Windows Mobile, does not look any rosier. The company's most significant partner in this market is the manufacturer HTC, which makes most of the Windows Mobile phones that get rebadged by operators.

HTC readily admits that it wouldn't exist without Microsoft, but it recently forced the software giant into a spectacular own goal. At the start of April, Microsoft unveiled Windows Mobile 6.1, the highlight of which was supposed to be Internet Explorer Mobile 6. Microsoft claims this version will finally match up to the PC version of the browser in terms of rendering, usability and features, but it is hard to tell exactly how accurate this claim is, as the mobile browser will not come out until later this year.

So, when HTC launched its Touch Diamond phone at the start of May, the device came with Windows Mobile 6.1 but — horror of horrors — no Internet Explorer Mobile. Instead, it came with Opera as its browser. The Touch Diamond is likely to be a popular handset, so a whole generation of Windows Mobile users will be introduced to Internet Explorer Mobile's biggest rival.

Speculative as it may be, it is not difficult to imagine a scenario where Microsoft rushed out Windows Mobile 6.1 under pressure from its biggest handset manufacturer ally, but without the shiny new browser. HTC wins; Microsoft loses.

On their own, the actions of Intel, Asus and HTC suggest slip-ups by Microsoft. But together, they form a clear and significant trend. Linux and Opera have been given a tremendous boost by these actions, and this could not have happened if Microsoft still had its legendary control over the ecosystem.

Bad news for Microsoft? Perhaps not. It can only be good for everyone — including the company itself — if it finds itself forced to respond to market forces instead of manipulating them. A reconnection to the principles of competition, of listening to customers, of innovating in ways that benefit users, not itself, can only be healthy in the long run.

In the short term, this medicine will taste sour. But it's time for a cure — or kill.