Microsoft has a long tradition of adding features to new versions of Windows, and Windows XP is a chip off the old block. A really big chip. Usually, the features in Windows are, at best, adequate to their functions. Rarely are they competitive with the best products on the market, and rarely do they put competitors out of business. Paint and WordPad and HyperTerminal were never a threat to real programs in those markets. Even where Microsoft does a fairly good job, as with Terminal Services, a large market is usually left over for companies like Citrix to add value.
But Windows XP, the most significant version since Windows 95, goes a lot further. There's been a lot of press about the inclusion of Windows Media Player and Windows Messenger, but other new features have gone relatively unnoticed. Let's look at some of the markets that we used to think of as applications software that are now part of the operating system.
The remote control market--a surprisingly vibrant one with over a dozen companies still competing--is toast. Remote Desktop and Remote Assistance in Windows XP are XP-only features, but one must assume that over time, as with other versions of Windows, critical mass will build up. Especially in the retail market, where Symantec PCAnywhere dominates, the run rate will probably drop quickly and precipitously. The corporate market will probably last longer, since corporations will have to manage heterogeneous environments for years and won't be able to commit for some time to an XP-only solution, but it will happen some day. Terminal Services, built into Windows 2000 and Windows .NET Servers (or whatever they are calling it this week), has already signaled the eventual end of a market for remote control for remote administration of servers.
System Restore This feature actually first appeared in Windows ME. The system automatically marks safe restore points and allows you to restore the system state to what it was then. Third-party products, such as Roxio's GoBack3, are much more full-featured, but the basic functionality of System Restore is enough to raise the bar considerably for these companies. (Windows XP's Device Driver Rollback feature is more icing on this cake.)
Windows has had backup for a long time, but it always stunk. Nobody who knew what they were doing would use it. Windows XP's Backup utility is not a bad one though, and with the ability to write CD-R disks built into the system, it's very practical for modern systems.
Time was you needed to get third party software in order to write a CD-ROM. Usually it came with your drive, but at least someone was getting paid for it. Now that Windows XP does this natively, that third party market will also have work harder to convince people that they are better than the "free" version.
ZIP Utilities It had to happen. Windows XP works with ZIP files natively, making them look like a compressed subdirectory. As with any utility, many users will prefer their old familiar WinZip or whatever, but look for that population to dwindle over time.
Internet Connection Firewall
It's rudimentary in the extreme, but XP comes with a kind of firewall. In fact, I wouldn't worry too much about third parties on this one. XP’s Internet Connection Firewall (ICF) is restrictive on normal use; for instance, you can't share files on the local network when it's running. In fact, it's probably good for everyone that the ICF is in there, because a lot of people won't buy a real firewall, but at least they will have the ICF.
Windows Media Player
This one has had a lot of attention. Personally, I think WMP8 is the best thing out there, but there's a lot of personal taste involved in these matters, and a lot of resentment of Microsoft. And out of the box, WMP8 won't have a high quality MP3 ripper (although, contrary to many news reports, it will play MP3 files). But there are interfaces to allow third parties to plug in new rippers, and the WMA format that the product prefers has higher quality than MP3 with much better compression. This is a complicated market, but Windows XP puts more pressure on it.
Encrypting File System
The Encrypting File System (EFS) encrypts all data on the disk, and requires the user's login to decrypt it. If the computer--or even just the disk--is stolen, the thief won't get anything. EFS, however, is available only in Windows XP Pro, one of many reasons why notebook users should avoid the Home version. There are many third party security tools, but the EFS approach, which first appeared in Windows 2000, is the right one.
User State Migration Tool
Like many third party utilities from Altiris and Symantec, among others, Windows XP can migrate a user's system settings to their new system after the installation of Windows XP so that they don't have to redo all that work on the new system. The third party tools, especially those from Altiris, migrate a lot more in terms of third party applications and are better suited to corporate networks, but many users will be happy enough with what XP provides.
Resultant Set of Policy (RSoP)
Managing group policies can be complicated, and there's a technique called Resultant Set of Policy that lets you make speculative changes in policies to see what the effects would be on specific users and groups. FAZAM 2000 is a utility that brings this technique to Windows 2000, but it comes built into Windows XP (when used with Windows .Net Server).
Exactly what market Windows Messenger competes in is tough to say. It's the consolidation of several products, mostly MSN Messenger and NetMeeting. NetMeeting's market died a few years ago, so I guess there was no harm in it hitching a ride onto XP. Will Windows Messenger finally give Microsoft a leg up on AOL because of the added NetMeeting features? It does make it a better program in many ways, but it's really the users on the system that make IM better.