For various reasons, any competitive OS will have to coexist for a while with Windows in order to become a market player. These contracts, which are only possible because of Microsoft's monopoly power, make it possible for MS to retain its market share and to eliminate all competition. They are, in short the secret to Microsoft's success. And the word secret is to be taken quite literally: No OEM may talk about the contents of his contract, or he will lose his license, and (assumption) likely be sued for breach of contract as well.
I have investigated this subject a little more in the past days, and have submitted my findings to the Directorate General Competition of the European Commission, i.e. Europe's anti-trust authority. My letter and fact-summary are reproduced below.
Erik Möller - XXXXX - XXXXX Berlin
Commission of the European Communities
DG Competition - Antitrust Registry
Rue Joseph II / Jozef II-straat 70
Microsoft Eliminates Competition Through Coercive OEM Contracts
I am a journalist covering the development of the computer operating system market. An operating system is an essential computer software component which is necessary for all other software to function.
During research for an article series on the subject, I found out that Microsoft Corporation forces contracted Original Equipment Manufacturers (OEMs), who receive significantly lower prices on Microsoft's Windows operating system, not to install any operating system besides Microsoft Windows. This is the main reason that Microsoft's operating system is installed on more than 90%  of client computers, whereas competitors' operating systems have either failed or are only installed in certain market niches.
It is technically possible for a manufacturer to install any number of operating systems on a computer. The user then has to choose which operating system to use during the boot process (after switching on the machine). However, Microsoft OEMs are only allowed to install Windows. No machines with both Windows and, for example, the free (!) operating system Linux, can legally be sold by OEMs.
The respective contracts are treated as trade secrets, which explains the silence about the situation. It is not possible for a large PC manufacturer not to enter an OEM contract with Microsoft because of the extremely small profit margins in the market, and the substantial difference between OEM pricing and normal pricing (OEM pricing is kept secret, too).
The details of the situation, as well as the substantial evidence I have found to back up my assertions, are covered in the attached fact sheet. I urge the Competition Commissioner, Mario Monti, to act upon this information and to investigate Microsoft's OEM contracts in order to restore healthy competition in the computer operating system market.
For security reasons, I send this letter via fax and mail. This letter, along with any responses I receive, will be published. I will gladly answer any technical questions, as far as my knowledge allows. I have no relationship with the PC industry.
 See for example: "Microsoft Strengthens Its Grip, Narrowing the Windows of Opportunity for Other Operating Environments", Press Release by IDC (a market research company), February 28, 2001: http://www.idc.com/software/press/PR/SW022801pr.stm
Enclosure: Microsoft Eliminates Competition Through Coercive OEM Contracts. Summary of Facts.
Microsoft Eliminates Competition Through Coercive OEM Contracts
Summary of Facts
Revision: October 23 2001
For a computer to be able to run programs, such as a word processor, it requires an operating system (OS), which enables applications' access to input devices, such as the keyboard and the mouse, and output devices, such as the screen and the printer. Microsoft's Windows operating system currently holds more than 90% of the market share of operating systems for client computers. A client computer typically runs end user applications, such as a word processor or spreadsheet, whereas a server computer provides services, such as a website, which can be accessed by client computers.
As confirmed by the decision of the United States District Court for the District of Columbia in United States vs. Microsoft , Microsoft has a monopoly in the client operating environment market. This is true for Europe as well.
The US court has also examined one crucial question: Do Microsoft's contracts with selected "Original Equipment Manufacturers" (OEMs), who receive substantial rebates on Microsoft's software, constitute an illegal abuse of said Microsoft monopoly? It has only examined this question as far as the bundling of Microsoft's Windows operating system with the Internet Explorer (IE) web-browser is concerned. The court found that Microsoft forced OEMs through contracts not to install any other web-browser instead of or besides IE (see "2.a.i. The OEM Channel" in United States vs. Microsoft). The IE controversy was the main subject of the investigation.
However, the IE controversy pales in comparison with a much more significant question: Does Microsoft retain its monopoly by forcing OEMs to install no other operating system besides Microsoft Windows? There is substantial evidence that supports this allegation.
Technically, a computer is able to start (boot) more than one operating system. A recent survey among 9960 German users of the Linux niche operating system  has found that 90% of Linux users are also using at least one other operating system.
Installing an operating system is a highly complicated technical process (it often requires the user, for instance, to provide detailed information about the hardware used, and to detect conflicts between different kinds of equipment), and installing an operating system besides an existing one is even more demanding: Here, users will have to deal with a complex element of software, the "bootloader" of the PC's harddisk, a program which starts the installed operating system. If the user accidentally "breaks" the bootloader, the operating system will no longer start. For most end users, the installation of a separate operating system is therefore out of the question.
From the point of view of a large PC manufacturer/seller such as Compaq or, in Germany, Vobis, the installation of an operating system is a trivial routine task. It is a process that only needs to be completed once for a PC series, and can be duplicated for each PC through the use of harddisk images.
Several alternative operating systems have tried to take on Microsoft's monopoly and failed. Among these are IBM's OS/2 and Be Inc.'s BeOS. Both OS/2 and BeOS are no longer relevant. The strongest competitor to Microsoft Windows is now Linux, which is "open source software", developed by volunteers and available for free download. It comes with applications which, as several recent reviews have indicated, are completely competitive to Microsoft's end user applications, and are free. Among these are Sun's Open Office office application, which competes with Microsoft Office, and AOL's Mozilla webbrowser, which competes with IE.
In a market of extremely small profit margins, it would be easy for a PC manufacturer to gain a large competitive advantage by installing Windows together with the free Linux OS, which, unlike Windows, comes with several gigabytes of free, feature-rich applications.
The first signs that Microsoft is coercing OEMs not to install separate operating systems came from Jean-Louis Gassée, CEO of Be Inc. Gassée promoted Be's BeOS not as an alternative to Windows, but wanted to establish it in a mode of "peaceful coexistence" for special multimedia applications such as video and sound editing. BeOS was touted for its performance and usability. However, BeOS never gained significant market share.
In several columns on the BeOS website, Gassée mentioned the bootloader issue, for example:
I once preached peaceful coexistence with Windows.
You may laugh at my expense -- I deserve it.
While I rambled on about peace on the hard disk,
Microsoft made it lethal for a PC OEM to factory-install
BeOS (or Linux, or FreeBSD) next to Windows on the
computer's hard disk. If you, as a PC OEM, don't use
the Windows boot manager or configure it to load
Linux or BeOS, you lose your Windows license and
you're dead. That's why you can't buy a multi-OS
machine from Compaq, Dell, HP or anyone else for that
matter. (Yes, you can buy a Linux laptop from IBM,
but not one that runs the Windows Office applications
you need or that can switch to Linux or BeOS when
you want.) 
In a newsletter article in 1999 , Gassée challenged Windows OEMs to include BeOS together with Windows on one of their machines: "We end with a real-life offer for any PC OEM that's willing to challenge the monopoly: Load the BeOS on the hard disk so the user can see it when the computer is first booted, and the license is free. Help us put a crack in the wall."
No PC manufacturer ever followed the offer. The situation was analyzed by BeOS user Scot Hacker in a column for the renowned computer magazine BYTE :
So why aren't there any dual-boot computers for sale? The
answer lies in the nature of the relationship Microsoft maintains
with hardware vendors. More specifically, in the "Windows
License" agreed to by hardware vendors who want to include
Windows on the computers they sell. This is not the license you
pretend to read and click "I Accept" when installing Windows.
This license is not available online. This is a confidential license,
seen only by Microsoft and computer vendors. You and I can't
read the license because Microsoft classifies it as a "trade
secret." The license specifies that any machine which includes a
Microsoft operating system must not also offer a non-Microsoft
operating system as a boot option. In other words, a computer
that offers to boot into Windows upon startup cannot also offer
to boot into BeOS or Linux. The hardware vendor does not get
to choose which OSes to install on the machines they sell --
However, the bootloader question was not examined in United States vs. Microsoft. While there is some mention of the "boot-up sequence" and OEM contracts disallowing to change it, the court transcripts are riddened with the words "Confidential material redacted" in that context. Scot Hacker reasons:
"Must not?" What, does Microsoft hold a gun to the vendor's
head? Not quite, but that wouldn't be a hyperbolic metaphor.
Instead, Microsoft threatens to revoke the vendor's license to
include Windows on the machine if the bootloader license is
violated. Because the world runs on Windows, no hardware
vendor can afford to ship machines that don't include Windows
alongside whatever alternative they might want to offer.
The burning question, of course, is why Boies and Klein [lawyers representing the US government, E.M.] didn't
want Gassée to testify on the bootloader issue, especially when it
could have substantially helped their case? The answer provided
to Gassée was that the case was by then already too well
established. Including the bootloader issue would have meant
rewriting many of the arguments and calling in a new collection of
witnesses. In other words, it wasn't convenient for the U.S.
government to get to the meat of the matter. It would have been
too much of a hassle to address Microsoft's anticompetitive
behavior in its purest form. In addition, no PC OEM was willing
to testify on bootloader issues. And why would they? The threat
of losing favor with Microsoft easily would have outweighed any
potential benefit from being able to preload the unproven Be
operating system alongside Windows on their machines. Finally,
Be didn't have the brand recognition that Netscape did;
Netscape made for a much better poster child. [Emphasis Hacker.]
So while the government acknowledged the coercive nature of OEM contracts, it did not examine the essential question of whether these contracts hindered the installation of alternative operating systems on OEM computers.
The Hitachi Case
Substantial evidence for the OEM allegations is offered by the case of the PC manufacturer Hitachi, which is also cited by Hacker:
In the 1998-1999 timeframe, ready to prime the pump with its
desktop offering, Be offered BeOS for free to any major
computer manufacturer willing to preinstall BeOS on machines
alongside Windows. Although few in the Be community ever
knew about the discussions, Gassée says that Be was engaged in
enthusiastic discussions with Dell, Compaq, Micron, and Hitachi.
Taken together, preinstallation arrangements with vendors of this
magnitude could have had a major impact on the future of Be
and BeOS. But of the four, only Hitachi actually shipped a
machine with BeOS pre-installed. The rest apparently backed
off after a closer reading of the fine print in their Microsoft
Windows License agreements. Hitachi did ship a line of
machines (the Flora Prius) with BeOS preinstalled, but made
changes to the bootloader -- rendering BeOS invisible to the
consumer -- before shipping. Apparently, Hitachi received a
little visit from Microsoft just before shipping the Flora Prius, and
were reminded of the terms of the license.
These instructions are posted on a webpage by BeOS . Excerpts:
Be was forced to post detailed instructions on their web site
explaining to customers how to unhide their hidden BeOS
partitions. It is likely that most Flora Prius owners never even
saw the BeOS installations to which they were entitled. [Emphasis Hacker]
Your Hitachi FLORA Prius PC has multiple operating systems installed
on it - BeOS and Windows 98. From the factory, however, only
Windows will boot without extra input and system configuration by the
end-user. This document discusses how to boot between the multiple
operating systems which are already installed on your computer.
In other words, Hitachi deliberately removed the boot manager provided by BeOS, which would have allowed easy access to both BeOS and Windows, from its series of FLORA PCs. There is hardly any other reason imaginable for this besides the Microsoft OEM contracts, given that BeOS functions without problems on the Prius once "unhidden".
The boot manager included with the BeOS is named Bootman. Since
your FLORA Prius does not come with Bootman already installed and
configured, step #3 will show you how to do it.
My Own Investigations
I tried to get more information about the issue with regard to German manufacturers. I found not a single manufacturer offering machines which had Windows installed with another operating system. For example, I contacted Vobis, one of Germany's largest PC manufacturers/sellers, which has OEM contracts with Microsoft. While their spokesman, Arno Neukirchen, explained that Vobis offered to install Linux instead of Windows, he also acknowledged that Linux would never be installed besides Windows. Asked whether this was because of OEM contracts, I was promised to have an email forwarded to the appropriate person. I sent the email, and the only reply that ever came back was:
nach Rücksprache mit unserem Produktmanagement, muss ich Ihnen leider
mitteilen, dass wir zu diesem Thema keine Auskunft geben können.
("After talking to our product management, I have to tell you that we cannot give you any information on this subject.") I asked whether this was because of Microsoft-NDAs -- no reply. I received the same reaction from several manufacturers. Microsoft, although contacted several times, never replied to me at all. I also contacted SuSE AG, the manufacturer of a Linux distribution, and asked them what the reaction by PC manufacturers to the offer to install Linux besides Windows was. While SuSE cited Non-Disclosure-Agreements as a reason not to talk about any results of such discussions, they gave me the name of another PC manufacturer I should contact.
This PC manufacturer, who has asked me to remain anonymous, manufactures both Windows and Linux machines, but no Windows/Linux machines. Asked why this is so, their sales manager told me bluntly: "We are not allowed to install Windows besides Linux because of OEM contracts." However, because there are "at most 15 OEM manufacturers in Germany", he did not want to cite any passage of the contracts, since "Microsoft could relatively easily identify us".
Because losing the OEM license would practically kill the manufacturer's Windows line of business, I respect his desire to remain anonymous. However, it should be easy for the European Commission to examine the contracts of OEMs for the presence of anti-competitive clauses. The evidence that suggests that such clauses exist is as substantial as it can get without an OEM committing suicide by releasing parts of their contract:
It is evident from these facts that the European Commission has to investigate Microsoft's OEM relationships, as the relevance of the question is paramount for competition in the OS market. No operating system will ever be able to compete with Microsoft Windows on the desktop market as long as OEMs cannot legally install it besides Windows without losing their license.
- The OEM allegations are supported by the findings in United States vs. Microsoft, specifically the findings regarding the coercion of OEM manufacturers not to change the web-browser. However, the findings regarding the installation of another OS are only vague with regard to "modifications of the boot-up sequence" (which is necessary in order to install another OS), and a lot of relevant material is redacted from the transcripts.
- Jean-Louis Gassée has directly claimed the presence of coercive OEM contracts and would likely be willing to testify on the subject before the European Commission.
- Hitachi has indirectly proven Gassée's point by hiding BeOS in the only case where it was installed alongside Windows.
- A German PC manufacturer I found directly confirmed the allegations.
 A copy of the decision can be found online at: http://www.usdoj.gov/atr/cases/f4400/4469.htm
 See http://www.heise.de/ct/01/17/186/
 The Victim Microsoft", by Jean-Louis Gassée. July 12, 2000. http://www.be.com/aboutbe/jlgcolumn/jlgcolumn007.html
 "A Crack in the Wall", by Jean-Louis Gassée, Be Newsletter, Volume III, Issue 8, February 24, 1999. http://www-classic.be.com/aboutbe/benewsletter/volume_III/Issue8.htmlx#Gassee
 "He Who Controls the Bootloader. BYTE, August 27, 2001. http://www.byte.com/documents/s=1115/byt20010824s0001/