Microsoft-AOL talks collapse

Deal helped build up AOL's customer base

Talks over including America Online in Microsoft's forthcoming Windows XP operating system have broken down.

The negotiations were called off after the two sides could not agree to terms, said Microsoft spokesman Jim Cullinan.

We're disappointed that talks broke down

Jim Cullinan

The two sides have to trying to hammer out a new deal since a contract between the two ended in January.

Under the terms of the expired contract, Microsoft had agreed to pre-install AOL internet service into its Windows desktops, providing AOL with valuable exposure to computer users.

In exchange, AOL had agreed to use internet Explorer, thus giving Microsoft's browser prominence over its main rival Netscape, which was later bought by AOL.

The deal was crucial in building AOL's market share in the second half of the 1990s, helping it become the world's largest internet service provider.

Two sides at odds

"We're disappointed that talks broke down," said Mr Cullinan, adding Microsoft was working to ensure that AOL software would work with Windows XP.

AOL has refused to comment on the reasons for the collapse of the talks.

Reports suggest the two sides were at odds over AOL's instant messaging program or over the use of Windows Media Player.

At the moment, AOL provides and supports technology from RealNetworks, Microsoft's rival in the digital media field.

Windows XP, the latest version of Microsoft's operating system, is due to be released in October.