1995–2005: Internet and legal issues

In the mid-90s, Microsoft began to expand its product line into computer networking and the World Wide Web. On August 24, 1995, it launched a major online service, MSN (Microsoft Network), as a direct competitor to AOL. MSN became an umbrella service for Microsoft's online services. The company continued to branch out into new markets in 1996, starting with a joint venture with NBC to create a new 24/7 cable news station, MSNBC. Microsoft entered the personal digital assistant (PDA) market in November with Windows CE 1.0, a new built-from-scratch version of their flagship operating system, specifically designed to run on low-memory, low-performance machines, such as handhelds and other small computers. Later in 1997, Internet Explorer 4.0 was released for both Mac OS and Windows, marking the beginning of the takeover of the browser market from rival Netscape. In October, the Justice Department filed a motion in the Federal District Court in which they stated that Microsoft had violated an agreement signed in 1994, and asked the court to stop the bundling of Internet Explorer with Windows.
Windows XP introduced a new interface, along with many other new features. This screenshot shows Windows XP Professional.
Windows XP introduced a new interface, along with many other new features. This screenshot shows Windows XP Professional.

The year 1998 was significant in Microsoft's history, with Bill Gates appointing Steve Ballmer as president of Microsoft but remaining as Chair and CEO himself. The company released Windows 98, an update to Windows 95 that incorporated a number of Internet-focused features and support for new types of devices. On April 3, 2000, a judgment was handed down in the case of United States v. Microsoft, calling the company an "abusive monopoly" and forcing the company to split into two separate units. Part of this ruling was later overturned by a federal appeals court, and eventually settled with the U.S. Department of Justice in 2001.

In 2001, Microsoft released Windows XP, the first version that encompassed the features of both its business and home product lines. XP introduced a new graphical user interface, the first such change since Windows 95. Later, Microsoft would enter the multi-billion-dollar game console market dominated by Sony and Nintendo, with the release of the Xbox. Microsoft encountered more turmoil in March 2004 when antitrust legal action would be brought against it by the European Union for allegedly abusing its market dominance (see European Union Microsoft antitrust case), eventually resulting in a judgement to produce a new version of its Windows XP platform—called Windows XP Home Edition N—that did not include its Windows Media Player.