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When designing Windows Vista, Microsoft put a lot of effort into taking advantage of sophisticated computer hardware, with fancy graphics on the surface and lots of new processing tricks inside. Microsoft says this positioned the operating system for the future, despite the complaining of many users who grumble that Vista has bogged down their computers with unneeded frills and incompatibilities. While there is some more high-powered glitz coming in Windows 7, the real challenge for Microsoft isn’t the latest multi-core superchip, but making the operating system work well, and affordably, on stripped down PCs, netbooks and other small devices. After all, the first real challenge to Windows (other than by Apple) in years has been the rise of small sub-$400 notebooks, called netbooks. Many have been offered with a version of Linux by computer makers who want to avoid paying for a Windows license. The pressure on Windows will only increase. Dirk Meyer, the chief executive of Advanced Micro Devices, told me last week that he expects the price of PCs to fall to $100 in the next few years. From what I learned talking to executives through the computer and electronics industry last week at the Consumer electronics Show, it appears that Microsoft has some momentum on adapting Windows to small PCs, but it may well have lost its way in the broader consumer electronics world where TVs, phones and other gadgets now need operating systems. Linux has not caught on for consumer PCs. While many of the inexpensive netbooks have been offered with Linux versions, the vast majority of buyers have chose to spend $30 to $50 to get Windows. Indeed, Microsoft says its research shows that most of the people who buy Linux netbooks actually install Windows on them, mainly illegal copies at that. “People want Windows, not Linux,” said Gilbert Fiorentino, chief executive of the technology products group at Systemax, parent company of CompUSA and TigerDirect. “They are used to it. It is more compatible and you can run other applications on it.” While Linux has a reputation as the operating system of choice for computer scientists and engineers, it has been offered on netbooks with simple interfaces to appeal to people who simply want to surf the Web, play music or get e-mail. Jonney Shih, the chairman of ASUStek, which makes netbooks under the ASUS brand, said this has not worked out well because even people who mainly want a netbook for Web surfing also want the option to use Windows programs sometimes. Windows 7 may work better with smaller computers. While Microsoft just released its first beta version of Windows 7, early signs are that it can run better on smaller computers than Windows Vista. Indeed, the company has been boasting about how little memory the operating system uses. ASUS, which has used Windows XP, rather than Vista, on its netbooks is now planning to use Windows 7 on some new models. “Compared with Vista, Windows 7 has improved quite a lot,” Mr. Shih said. Microsoft will cut prices somewhat for Windows on small computers. For years, Microsoft has been able to increase the average price computer makers pay to include a copy of Windows on their machines. The falling price of PCs has put an end to that practice, Steve Ballmer, Microsoft’s chief executive, said in an interview last week. He wouldn’t discuss the details of the company’s pricing. But industry executives said that the company, which has been selling fancier versions of Windows for $50 to $80 when bundled with a computer, has been charging netbook makers about $35 for a copy of Windows XP. Mr. Ballmer did say that with Windows 7, Microsoft will continue to have a wide range of prices. “We make a little bit less on some of these netbook computers than we would more on full featured full screen technologies or on business technologies,” he said, “but there will also be more PCs sold.” Mr. Ballmer and other Microsoft executives I spoke to last week expressed confidence that Windows will be able to continue to offer consumers enough of a better experience than Linux that it will be able to be worth the $30 to $50 extra that consumers pay for it on a computer. Microsoft has lost its way in consumer electronics. It was a glaring omission that when nearly every electronics maker was introducing an Internet connected TV at the show last week that Microsoft software was in none of them. This is not because Microsoft didn’t see this convergence coming; rather it may be paying the price for being a decade too early. The company introduced a version of what has become the Windows CE operating system in 1997, which was promoted for everything from personal organizers to television sets. The company hardly mentions Windows CE anymore, although it is used on its Sync product in Ford cars and a smattering of other devices. And the work on Windows CE has flowed into various other products, most notably the Windows Mobile system, used in cellphones. Rather than working with electronics makers, Microsoft has found more money to be made selling software for set top boxes used by AT&T and other pay TV systems. And it is transforming its Xbox game machine into a video playback device. Over the last few years, Windows Mobile has languished as all the attention in cellphones has gone to the iPhone, Google’s Android and now the Palm Pre. Microsoft is hinting that it will update its plans for cellphones next month. For now, Windows Mobile is significantly out of sync with the flagship product. For example, even the upcoming new release of Internet Explorer for Mobile is based in IE 6, which dates to 2001, not the new IE 8. By contrast, Apple has engineered its OS X to work on its computers, the iPhone and Apple TV and thereby offering developers a somewhat more consistent way to create applications for these devices. Linux, of course, is popping up everywhere, although in many dialects. Both the Palm Pre, and Google’s Android are based on Linux, as are many of the new Internet televisions. Indeed, even Intel, Microsoft’s long time partner, chose Linux not Windows CE, as the software for its new platform for televisions, even though the chip is based on the PC-standard X86 architecture. Mr. Ballmer and other Microsoft executives are talking about the company’s strategy to integrate the three sorts of screens in people’s lives—computers, phones and televisions. But even though Windows 7 has been getting some positive early reviews, they have a lot more work to do to make sure Windows is small enough and flexible enough to be the operating system behind all these screens and the many others that will soon be available.

Yahoo’s new data retention policy is the most restrictive among major search engines in the United States and will most likely put pressure on rivals like Google and Microsoft to shorten the time they keep information about their users.
It comes at a time when some privacy advocates are planning a renewed push for legislation that would regulate the data retention and online advertising practices of Internet companies, which they say has a stronger chance of passing with a new Congress and president in Washington.
Already Representative Edward J. Markey, a Massachusetts Democrat who is chairman of the House Subcommittee on Telecommunications and the Internet, praised Yahoo for setting a new privacy standard. “I urge other leading online companies to match or beat the commitments announced by Yahoo,” Mr. Markey said in a press release. Previously, Yahoo kept search logs for 13 months. In September, Google began to strip out some personally identifiable information related to searches after 9 months. Microsoft keeps the information for 18 months.
The strongest pressure on Internet companies so far came from European regulators who have been urging major search engines to reduce to six months the time they hold personally identifiable information. Microsoft said last week that it would agree to such a standard if its rivals also went along.
Anne Toth, vice president of policy at Yahoo, said that the company chose an even shorter time period to “take the issue off the table.” Ms. Toth said she hoped that the new policy would make Yahoo’s search service more attractive with users concerned about privacy.
But it is not clear that stronger privacy protections will persuade consumers to switch to a different search engine. Last year, Ask.com introduced a new feature called AskEraser, which allows users to search anonymously. It has had little noticeable effect on the popularity of Ask.com. Google is the dominant search engine, handling about 63 percent of search queries in the United States, according to comScore.
Under the new policy, Yahoo will delete the last eight bits of the Internet Protocol, or I.P., address associated with a search query after 90 days. I.P. addresses are digital tags that can identify a specific computer. Yahoo will also hide cookie data related to each search log and strip out any personally identifiable information, like a name, phone number, address or Social Security number, from the query itself.
Yahoo also said that its new policy would extend to other types of data it collected, like page views, page clicks, ad views and ad clicks.
Major search engines have said they need to retain personal data, in part, to provide better services, like more targeted ads and more relevant searches. Ms. Toth said Yahoo determined it could begin scrambling the personal data after 90 days without affecting the quality of services it provided to users, advertisers and publishers.
Privacy advocates said that the new policy was a step in the right direction and credited the change to pressure from European regulators. But they said that Yahoo’s method of scrambling I.P. addresses by deleting their last eight bits was inadequate to guarantee privacy.
“That is not provably anonymous,” said Marc Rotenberg, executive director of the Electronic Privacy Information Center. Mr. Rotenberg and other advocates said that companies should delete the entire I.P. address, an approach recommended by European officials. Currently, Microsoft deletes the entire I.P. address, while Google deletes only the last eight bits.
“Microsoft believes that the method of anonymization is more important than the anonymization timeframe and believes all major search engines need to adopt a high standard,” Brendon Lynch, director of privacy strategy at Microsoft.
Google declined to comment directly on Yahoo’s new policy but said it was “continually evaluating” how to balance the services it offered with the privacy of its users. Google had said previously that discarding personally identifiable data sooner than nine months would undermine the quality of its search engine and other services.

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