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Inspecting XP

A flap over Windows XP shows that some customers don't trust Microsoft. That doesn't bode well for the company's grander plans.
Microsoft's new anti-piracy measure in its Windows XP operating system will be invisible to business users. Most IT departments will have to deal with it only once. And just a tiny fraction of home and small-business PC users risk running afoul of the hardware-detection algorithm. The mechanism reports back to Microsoft the configuration of the computer that XP is running on and tells the operating system to lock up files if the hardware changes too much.

So why is Windows Product Activation becoming such a pain for Microsoft to include in its upcoming PC operating system? The answer-a combination of technical misunderstanding, user mistrust of Microsoft's motives, and general consumer skittishness about privacy in cyberspace-reveals the complicated relationship between Microsoft and many of its customers.

As a result, Microsoft is having to work extra-hard to introduce even a relatively minor change to its products such as Windows Product Activation. That raises questions about Microsoft's ability to introduce software that's in the works to tighten the relationship between user and software vendor well beyond product activation. The situation has both sides peeved.

"Anything and everything Microsoft does can be controversial," says Bill Mitchin, VP and CIO at American Health Holding Inc., a health-care management company in Columbus, Ohio. "When you buy software from Microsoft, you should know what you're getting yourself into."

At first glance, Windows Product Activation looks fairly innocuous. Meant to deter casual copying, it requires users to file a product-specific code with Microsoft. When Windows boots up, it checks whether the PC's configuration has changed drastically, which would suggest the software had been copied to a new machine. If a user tries to run an illegal copy-or make a significant-enough hardware change-Windows XP will lock up, and the user will need to call Microsoft support and explain the situation (see story, "Windows Product Activation Versus Software Registration").

Microsoft predicts few will have to. "The main thing we're trying to do with this algorithm is draw the fine line between the hobbyist and the casual copier," says Mark Croft, lead product manager for Windows XP. "No end user in a business setting should ever see product activation at all." IT managers who buy XP through volume licensing agreements deal with Windows Product Activation by entering one numeric code for each master image of Windows XP they create. PC makers will take care of the initial activation process for small businesses and home users who buy Windows XP on new machines. Hobbyists who tinker with their systems can make up to six hardware changes, with a few exceptions, without triggering XP's lockout measure.

Don't expect Microsoft to back away from its piracy crackdown. The vendor estimates that 250 million users worldwide run its Office suite, though only 140 million copies are paid for. It started testing product activation two years ago with international and academic versions of Office 2000. Office XP, released earlier this year, and Windows XP, due Oct. 25, contain refined versions of the technology, as do Microsoft's Visio 2002 and Project 2002. "We have a reasonable track record now in making sure some of this stuff works reliably," Croft says.

So why are users protesting? "There's a certain percentage of people who immediately equate this with Microsoft gathering information on them and probably stealing stuff off their hard drive," says Summit Strategies analyst Dwight Davis.

Never mind that PC game developers and other specialty software makers routinely include activation features in their products: Microsoft's got a perception problem. "I don't trust Microsoft," says Steve Baxendale, director of technology at Pacific Resources for Educational Learning, a nonprofit distance-learning company in Honolulu. "If [the data] were really for only their use, fine. But I'm not sure that's really the case."

Chairman and chief software architect Bill Gates says Microsoft plans enhancements to its Windows and Office Update software that could make the vendor's presence in users' daily work even more prevalent. At a Microsoft Research event in Redmond, Wash., last week, Gates said a company research-and-development initiative called "Always Works" aims to build into Windows tools for reporting crashes and other problems to Microsoft, which will record the bugs and devise fixes. "To complete that loop, the software has to be updated regularly using the Internet and a facility like Windows Update," Gates says.

Microsoft has been willing to play ball with privacy advocates before-the company recently stopped collecting home addresses for basic-account users of its Passport online authentication software. Group VP Bob Muglia promises that Microsoft's upcoming HailStorm software, aimed at giving users personalized applications that follow them around from computer to computer, won't reveal their identities to outside companies. And Microsoft has softened Windows XP's activation to allow more-up to six-hardware changes.

Still, there's reason to believe the company will be more aggressive in other areas, creating what Gates calls "digital feedback loops" with customers. Microsoft wants to make Internet software updates "dramatically more central to the user experience," Gates says. For some users, it's an experience they could live without.

--with Marianne Kolbasuk McGee