This Space for Rent!

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SAN FRANCISCO -- Friend or foe? Sometimes you just can't tell. Microsoft (MSFT) - Get Report appears as stumped as anyone over what to make of Pixel, a privately held Seattle-based company that last month announced it had found a way to circumvent Microsoft's control of the PC desktop.

The once-obscure company caused a stir when it announced it had discovered uncharted territory on the PC desktop. Known as the "overscan area," this minuscule, maybe half-inch strip of blank space between the edge of the monitor and Windows isn't being used by anybody for anything. In fact, it's usually hidden because most monitors are set up to extend the picture all the way to the edge of the screen. But in a world where it seems no space is too small to interest advertisers, Pixel thinks the overscan area is ripe for exploitation by hardware manufacturers, software companies, Internet providers and anyone else who wants to get their logo, service or product onto a PC without first having to ask for Microsoft's permission.

It remains to be seen whether others will lay claim to the overscan territory, but so far, Pixel believes a combination of clever marketing and possible future patents will keep competitors at bay.

Two weeks ago, the neighbors met for the first time in Microsoft's Redmond, Wash., offices. Pixel President Tom O'Rourke made a presentation to Microsoft's original equipment manufacturer group, led by Joachim Kempin.

"The reaction was very good," O'Rourke says. "They complimented us on its ingenuity. They thought it was a clever idea." O'Rourke believes he successfully demonstrated to Microsoft that Pixel's technology lies outside the province of Windows. The two groups batted around some ideas for various possible relationships, including Microsoft paying Pixel to display its content on the bar and some kind of use or exchange of Pixel's technology, O'Rourke said. But mostly it was just an informational session.

"Their initial question was, does it do anything to Windows? " O'Rourke said. "Does it interfere with the look, the size, the feel or anything else?"

Pixel hasn't heard a word since, either from Microsoft or from other OEMs who might be expected to know what the software giant is thinking.

Typically, if stories of past spurned suitors are to be believed, that would mean Microsoft is busy trying to figure out how it can copy the technology or buy the company for a low price. But in the current atmosphere of government scrutiny, Microsoft is unlikely to do either and may, in fact, encourage Pixel as proof that innovation is still possible and that it doesn't totally control the PC screen.

Indeed, a Microsoft spokeswoman, when asked to about negotiations with Pixel, said only that "OEMs are free to install any software on PCs, and Pixel is an example of that." The company had no further comment.

"Microsoft is interested in any technology that affects or impacts their technology," said Rob Enderle, an analyst with market-research firm

Giga Information Group

of Norwell, Mass. "This is something they have not been thinking of, so I think the nature of the discussions are exploratory to see what the scope of this is, how does this affect us, should we object to this or support it? Then they can determine whether they should buy it, license it or fight it. I think they're intrigued. If I were Microsoft, I would use this as an example of how people can creatively come up with ways to innovate around my platform."

As it turns out, this is not the first time the overscan area has been used. In the early '90s, some high-end monitor companies used it for monitor controls so their customers could fine-tune the quality of their pictures. But it is certainly the first time anyone has tried to claim the space and license it to others for advertising purposes. Pixel envisions that the space could be used by hardware manufacturers who want to offer service and support information to their customers. The company has already shipped the first version of its product, a GUI interface called MySpace, to

Packard Bell NEC

, which plans to use the technology in forthcoming systems. An end-user version will be available for downloading over the Internet in August.

It's no surprise that Packard Bell would be the first hardware manufacturer to use MySpace, because Pixel is actually a spinoff of Packard Bell. Pixel says it is talking to other OEMs about similar deals. So far, Packard Bell has not said how it plans to use the technology.

Consumers could use the bar to highlight their favorite applications and Internet destinations, just as they already do on the Windows desktop. O'Rourke could also see the bar being used to flash messages from satellites, pagers and the Internet. It could also serve as a handy way to toggle between different operating systems, mediums and hardware devices, such as DOS for game-players, DVD, television, alternative browsers, pagers and telephones.

O'Rourke's vision sounds like a parallel universe to Windows. Like Windows, the MySpace bar and its underlying technology could become a standard interface between hardware devices and applications. If this were really to happen, Pixel could potentially threaten Microsoft's revenues by usurping many of the company's important functions. But in truth, this seems like an extremely unlikely scenario. The application of MySpace will probably be much more limited and prosaic -- an adjunct to Windows rather than a replacement for it.

For example, games players might use it to toggle between DOS and Windows, as long as they don't mind killing DOS to return to Windows. Windows can go into suspend mode, but DOS can't, and other operating systems, such as Unix, probably wouldn't be compatible either, Enderle said. Customers can already customize their desktop, of course, so MySpace may not be necessary. And it may turn out to be a nuisance if consumers wind up with logos they don't want and can't eliminate. (The version shipping in the fall will allow users more control over what is displayed on their screens, said Pixel Chief Technology Officer David Nason.)

But PC manufacturers could put together some interesting packages using hardware devices from third parties. MySpace is also likely to be popular with corporate users, which can configure easy access to the applications they prefer their employees to use. MIS departments could also configure one machine to instantly offer different "desktops" to different users.

MySpace does prove that innovation is still possible in the world of Windows, though some may argue that the room for innovation is, literally, very small. (In the same vein,

Comet Systems

recently announced it can transform Web surfers' cursors into the logo of the company whose site they're visiting.) And while perhaps it's not the route PC manufacturers would have preferred, MySpace is certainly one way they and others can get around the Microsoft dictates that the

Justice Department

has called into question in its recent antitrust suit. And in that sense, Pixel is a good compromise that's also good for Microsoft.