Kodak has just sent me a press release on their official position on Windows XP and its new Digital Photography integration. Looks like things are not at all well between Kodak and Microsoft, in this press release Kodak accuse Microsoft of limiting consumer choice as to what the users default photo application should be, they also state that Microsoft is attempting to 'Tax the Internet' by having a list of Microsoft-Preferred photo finishing sites... Trouble brewing.

Official press release:


BACKGROUND: This fall, Microsoft plans to ship the Windows XP operating system. An important part of Windows XP is a new bundled digital photo application that can be used when a digital camera using the new Picture Transfer Protocol (PTP) standard-which Kodak, Microsoft, and others developed-is connected to a PC. This presents the following issues for consumers and the digital photography industry:

1. WINDOWS XP LIMITS CONSUMER CHOICE: Kodak recently launched a new digital photo system, EasyShare, which consists of a digital camera, a docking station, and easy-to-use software to store, enhance, share, and print digital pictures. EasyShare simplifies the process of taking digital photos and transferring them to a PC. The EasyShare software system allows the user to place a Kodak camera into a camera dock and transfer pictures to a computer with the press of a button. The EasyShare software also provides easy-to-use functions to edit and organize images and print pictures locally and, in future versions, over the Internet.

However, Microsoft Windows XP makes it difficult for consumers to set as the default the digital photo application of their choice-whether a Kodak application or that of any other company. Kodak welcomes Microsoft's efforts to offer consumers another choice of a digital photography software application-but only if Microsoft does so on a level playing field. In Windows XP, Microsoft has placed unnecessary restrictions and limitations on non-Microsoft photography applications. By making it difficult to use an alternate application, Microsoft is steering consumers to Microsoft applications. The EasyShare System, as an example, provides features to consumers that are not offered by the Microsoft application; thus those additional features will not be easily and readily available to consumers using Windows XP computers. Windows XP users will be restricted in their ability to use the photo application of their choice. Microsoft has co-opted the PTP standard and is using it in a way contrary to its original design.

Kodak's support of the PTP standard has led us to challenge Microsoft's efforts to use the standard as a vehicle to manipulate the digital camera connection and software selection to its advantage, which will result in less consumer choice and less industry growth. Microsoft's actions clearly limit consumer choice and set back the gains made by the industry in terms of ease of use for consumers. Microsoft is relegating companies that refuse to uses it PTP driver (an effort to gain greater control) to secondary status in the operating system. As a result, innovation-and thus, industry growth-will be hindered.

2. MICROSOFT IS 'TAXING THE INTERNET': A key function built into Windows XP is a list of Microsoft and "Microsoft-preferred" Internet-based photo-printing services. Microsoft is establishing itself as the gatekeeper for consumers' pictures, and it has the ability to change continuously the photo printing vendors on this list based on their business relationships with Microsoft. Microsoft plans to charge an up-front listing fee and a transaction revenue share to those companies included on this list, in effect "taxing the Internet." While a user can add vendors to this list, Microsoft will automatically check its servers and install those companies that have "most favored nation" status with Microsoft at the top of the list. By making it difficult for consumers to use the digital photo application of their choice when initially transferring pictures from digital camera to PC, Microsoft has assured that users will have less access to alternate Internet printing vendors and that Microsoft will take a percentage of each transaction that passes through the desktop. By limiting competition to Microsoft's own / "preferred" vendor list, Microsoft can raise its fees to vendors; or as former Microsoft CTO Nathan Mhryvold stated, Microsoft will get a "vig" on each transaction that passes through the desktop.

KODAK'S POSITION: Kodak believes consumers should be able to freely choose the digital photo application of their choice. Additionally, Kodak believes that consumers should decide when and where they print their pictures. Microsoft should not steer consumers to "approved vendors" where Microsoft will tax the transaction.

An older AP news article on this subject:
(my emphasis in bold type)

Kodak Squeezed in Digital Battle

NEW YORK (AP) - As digital photography moves into the mainstream, rivals AOL Time Warner and Microsoft Corp. are battling to offer computer photo-processing services and grab a share of the photofinishing revenue.

Both companies announced competing digital photo services Tuesday, and an AOL partner, Eastman Kodak, complained that Microsoft sidelined its photo software in the latest version of its dominant computer operating system.

"Microsoft is positioning itself as the gatekeeper,'' said Kodak spokesman Anthony Sanzio. "Consumers have virtually no choice on their operating system, and Microsoft is leveraging that.''

In New York, Microsoft demonstrated the new digital camera capabilities included in its forthcoming Windows XP (news - web sites) operating system software, scheduled for release October 25.

Windows XP offers digital photographers "end-to-end'' processing options, from simple transfer of camera images to the computer's hard drive, to posting them on the Web or sending them to a photofinishing service - with preference to a Microsoft-affiliated vendor.

Meanwhile, AOL and Kodak announced the expansion of a competing photo-sharing and printing arrangement called "You've Got Pictures,'' which allows camera users to store digital photos online and order prints - from Kodak.

The Kodak-AOL arrangement offers free online storage for pictures and an option to process film negatives as paper prints and digital images for about $8.99 per roll.

AOL and Microsoft compete fiercely on several fronts, from instant messaging and digital music and video player software to monthly Internet access subscriptions. The two service providers rank number one and two, with AOL counting 30 million subscribers to the 6.5 million users of Microsoft's MSN Internet service.

Sanzio took advantage of an invitation to Tuesday's Microsoft-sponsored event to demonstrate what he called the software giant's preferential treatment for Kodak competitors.

When he attempted to install Kodak's EasyShare photo software - which is sold with Kodak digital cameras - Microsoft's XP operating system warned that the Kodak software was uncertified, urging a switch to Microsoft's.

When Sanzio installed the Kodak software, Windows XP chose Microsoft's Scanner and Camera Wizard - not Kodak's EasyShare - as the default program to import and catalog images, and buy photo prints.

Sanzio said Microsoft is unfairly routing potential Kodak customers.

Microsoft has so far refused to "sign,'' or recognize, Kodak's software because it "didn't meet the compatibility standards of Windows XP,'' Microsoft product manager Shawn Sanford said.

"They're the only vendor that seems to be demonstrating an unsigned dialogue box,'' said Sanford, gesturing toward a hotel room full of software vendors displaying XP-compatible cameras and software.

Sanzio said Kodak is negotiating a photofinishing agreement with Microsoft, which involves an initial payment from Kodak, along with a cut of each sale.

Sanzio acknowledged that Kodak agreed to a similar revenue-sharing arrangement with AOL in order to get access to the company's customers. But he said the arrangement differs from the Microsoft dispute because of Microsoft's domination of the computer operating system market.

"Microsoft has been declared a monopoly by the U.S. government,'' said Sanzio. "AOL has not.''