Microsoft kills Windows 7E, puts IE back in upcoming OS

Betting that European antitrust regulators will okay its proposal for a “ballot screen” and facing opposition from computer makers and corporate customers, Microsoft late Friday abandoned plans to ship Windows 7 without Internet Explorer (IE).

At the same time, a company executive said Microsoft wasn't happy with having to give equal time to rival browsers. “As you might imagine, it was not easy for Microsoft to accept the idea that we would essentially promote directly competing software from within our flagship product, Windows,” said Dave Heiner, Microsoft's deputy general counsel and a company vice president.

Even though officials from the European Commission haven't signed off on Microsoft's proposal to offer customers a choice of rival browsers when they first run Windows 7, the company said it is dropping the special edition once destined for Europe, dubbed Windows 7E.

Microsoft first proposed the Europe-only versions nearly two months ago, one of several major concessions it's made this year to Brussels-based regulators.

“In the wake of last week's developments, as well as continuing feedback on Windows 7 E that we have received from computer manufacturers and other business partners, I'm pleased to report that we will ship the same version of Windows 7 in Europe in October that we will ship in the rest of the world,” Heiner said on a company blog Friday night.

Heiner's reference to last week was to Microsoft's proposal, announced July 24, that it would provide a ballot screen in Windows 7, and later on Windows XP and Vista, when Internet Explorer (IE) is set as the default browser. EU antitrust officials had been pushing for such a screen — which will provide download and informational links to rivals such as Firefox, Safari, Opera, Chrome and others — since it filed charges against Microsoft in January. Until last week, Microsoft had resisted adding a ballot to Windows.

“The Commission welcomes this proposal, and will now investigate its practical effectiveness in terms of ensuring genuine consumer choice,” said the EU's antitrust agency in a statement July 24.

Microsoft's obviously taken the “welcomes this proposal” to heart, or it knows more than it's telling about progress with the commission toward a final deal. Heiner hinted at the former. “We … feel encouraged in making this decision by the positive reaction from so many quarters to our ballot screen proposal last week,” he said.

Opera Software, the Norwegian browser maker whose December 2007 complaint to the commission sparked the latter's charges that Microsoft was violating the law by bundling IE with Windows, had responded favorably to the ballot screen idea. Even so, the company had expressed concerns, as well as the long-shot hope that Microsoft would expand the ballot concept worldwide.

Heiner also admitted that computers makers were unhappy with Windows 7E.

“One reason we decided not to ship Windows 7 E is concerns raised by computer manufacturers and partners,” he said. “Several worried about the complexity of changing the version of Windows that we ship in Europe if our ballot screen proposal is ultimately accepted by the Commission and we stop selling Windows 7 E.” OEMs were also worried that if Windows 7E was eventually dropped, customers would be confused when IE suddenly reappeared in the OS.

Although computer makers had not complained publicly about Windows 7E, and the ensuing need for them to install one or more browsers on new PCs, the issue had been raised by analysts. Microsoft was planning on giving away installation media containing IE8 at retail for consumers who bought upgrade editions of Windows 7. That idea is dead in the water, too.

Heiner also hinted that multinational companies balked at Windows 7E. “[This decision] will also streamline … deployment by large enterprises, because Windows will be the same in Europe as in the rest of the world,” he said.

On the plus side for European customers, Microsoft's decision means that they will be able to do “in-place” upgrades from Vista to Windows 7, something that was unavailable with 7E. In 7E, they would be forced to do so-called “clean installs” that would have required them to back up their settings and data files, install Windows 7E, restore settings and files from the backup, and finally, reinstall all applications.

But by ditching Windows 7E, Microsoft will be free to use the same two-tier pricing card it uses everywhere else, where it charges less for “upgrade” editions and more for so-called “full” versions. Previously, Microsoft had said it couldn't sell upgrade editions in the EU, since only a clean-install would result in an IE-less OS; to deal with the problem, it has been selling the full-package versions at the lower upgrade prices.

Assuming Microsoft returns to its dual upgrade/full structure, prices for the full versions of Windows 7 will jump dramatically. Previously, Microsoft had pegged the full price of Windows 7 Home Premium at €200, a 66% jump from the €120 price for the upgrade. The other retail editions' full package prices are also higher: Professional, for example, will cost €309 in a full version, 8% more than the €285 upgrade price.

It's unclear how Microsoft will deal with customers who have already pre-ordered Windows 7E and paid the upgrade price but were told they would receive a full-package edition. As of Saturday, Microsoft's own online stores for both the EU and the U.K. were still selling Windows 7E.

Ironically, the users who may be most affected by the return of two-tier pricing are those who use Macs, but want to run Windows in a virtual machine. While PC owners typically upgrade from an older OS to a new — and so can get by with the cheaper upgrades — users who run Windows in a virtual environment often create the faux “machines” from scratch, and so require a full-package version.

Heiner also left the door open to a return of Windows 7E if the commission doesn't play ball. “We recognize that there are still several steps ahead in the Commission's review of our proposal and that we are not done,” Heiner said. “…If the ballot screen proposal is not accepted for some reason, then we will have to consider alternative paths, including the reintroduction of a Windows 7 E version in Europe.”

Windows 7 is set to launch worldwide Oct. 22, but the first copies of the final code have already been handed to computer makers, and will reach developers and IT professional Aug. 6.