All eyes are on Microsoft this month as it launches its new flagship product, Windows XP, and begins the process of transforming itself from simple software vendor into a network-age seller of internet services.

But, unlike the hype that accompanied Windows 95 - a similarly important software launch for Microsoft - the scrutiny the company is coming under this time around will be much tougher. Consumers and business customers are showing signs of rebelling against the Redmond giant, provoked by the dual concern of what Microsoft has become - and what it might be soon.

Over the summer, the US court of appeal elected not to split Microsoft in two after it found the company guilty of abusing its monopoly power. In the wake of that decision, Microsoft has pressed on with the multi-billion dollar launch of its latest operating system.

Windows XP, which appears on shelves on October 25, is a major revision in the Windows dynasty of operating systems, which runs on more than 90% of the world's PCs.

At the same time, the company is attempting to transform itself from a software company into an internet services company, convinced that in the future every software application will not be installed by the user on his computer, but run over the internet from central servers.

Yet this approach has suddenly placed the company at the centre of a storm of protest from its users.

The European Commission has announced it is extending its investigation of Microsoft's practices, amid concerns the company is repeating its assault of the mid-90s on Netscape. The EC fears the American company is using its dominance of the computer operating system market to attack the niche currently dominated by Real, which makes software to allow live - or "streamed" - audio and video to be played on PCs. Microsoft is tightly incorporating its Windows Media software into Windows, while not offering Real's software, thus forcing users who want Real's popular audio and video players to download and install it themselves. The EU is already investigating Microsoft's behaviour in the server software market.

Perhaps worse than further regulatory interest, however, is the reaction of Microsoft's corporate customers to a new licensing regime that the company has been operating since the start of this month. The new system, which is replacing existing methods of licensing thousands of copies of software across enterprises, forces companies to pay a subscription for system and office software, and all the subsequent upgrades, rather than allowing them to buy the same software and opt not to buy the upgrades. The system means Microsoft can force upgrades on enterprises: if those businesses refuse, they have to pay more for their Microsoft software later on.

For IT directors keen to keep a close eye on their systems, losing the ability to determine when upgrades are carried out on their systems is bad enough. But they have also discovered the new system costs much more than the old one, and that has prompted uproar and united action in an industry noted for its fragmented and docile approach towards lobbying.

Members of The Infrastructure Forum (Tif) are a blue-chip bunch - they include 45 of the companies in the FTSE100. And, after emergency meetings to discuss the license changes, announced in May and intro duced for new licences at the start of this month, the forum has written to the Department for Trade and Industry demanding an investigation into Microsoft by the Office of Fair Trading. Tif says its members, who spend on average £2m a year with Microsoft, face an increase of 94% under the new system. Some of its members are already said to be exploring alternatives to Microsoft's omnipresent software.

"Even we had trouble with this 94% figure - it's just absurd," says David Roberts, chief executive of Tif. "But this was happening consistently with organisations which have professional procurement people, professional licensing people who understand their Microsoft estate very well_ these are well managed IT functions."

Creating even more resentment is the fact that, according to some corporate IT watchers, much Microsoft software in businesses has appeared in businesses through "creep" - through pressure from users, rather than through the corporate IT departments. Dan Kusnetsky, vice-president of systems software research for analyst house IDC, says this has happened over the past decade because, while IT departments want to test and evaluate software, end users "just want the newest features and functions when they come out.

"Microsoft has always fed the end user, created extreme pressure and forced the IT organisation into adopting the software or getting run over by their own users," says Kusnetsky. "It was a creative variation on the surround and conquer technique."

And, says Tif's Roberts, that puts the IT departments Microsoft is now negotiating with in a difficult position. "Given that Microsoft has crept stealthily into organisations and permeated quite a variety of different IT processes and systems almost by creep, the organisations are now very dependent upon Microsoft.

"The businesses, generally, depend upon Microsoft to run properly. You can't just turn it off."

It would take four years, on average, to purge one of Tif's member organisations of Microsoft products - and that would require significant investment of time and resources. "Nobody is going to enter into that sort of thing, but nor can they afford to roll over and just sign the cheque," says Roberts.

Microsoft says it is unable to comment to the Guardian about the changes. But when the changes were first being discussed, in August, Duncan Reid, the company's UK licensing manager, insisted the company was not abusing its monopoly position. He told Computer Weekly: "We are extremely confident that our new licensing programme is absolutely legal and good for our customers."

Tif's members are not so sure. They have now written to the DTi demanding an investigation into a move which Roberts describes as "a significant [price] increase on a market that it effectively owns, and currently doesn't have anywhere else to go."

They fear that, while big businesses with their greater IT resources have uncovered the price hike in advance, smaller businesses will face an unexpectedly large bill when they come to renew their deal with Microsoft, or buy new software.

In the US, meanwhile, a coalition of the country's biggest consumer groups is demanding tough action against the software giant for what they say is its continued abuse of monopoly power, made worse by features new to Windows XP.

They have several areas of concern, outlined in a damning 34-page report entitled Windows XP/.Net: Microsoft's Expanding Monopoly. Dr Mark Cooper, director of research at the Consumer Federation of America and one of the authors of the report, says Windows XP has brought Microsoft's anti-competitive behaviour much closer to the consumer. Where once users often had an indirect relationship with Microsoft, through software bundles brokered by their computer manufacturer, Windows XP brings the issues raised by Microsoft's dominance to their doorsteps, he says.

"In 1995, the browser wars were for geeks. This was esoteric stuff," says Cooper. "Five years later you have law enforcement all over the place, business customers, home customers, small business customers - a variety of people - very concerned."

Cooper saw this coming. Four years ago, when he circulated his first draft research paper on Microsoft's activities, he included the statement: "Microsoft's goal is to capture the internet".

"A lot of people said that sounded like an overreach, so we didn't use it," he says now. "And then along comes XP, which makes it quite clear that it was actually a very important part of their strategy."

At the core of his concerns is the bundling of previously separate programs, such as Media Player and Messenger, as integral parts of Windows. We have seen this before, he says - Internet Explorer was incorporated into Windows 98 to finally end the dominance of Netscape's Navigator web browser. "Designing XP the way they did was essentially assuming they'd win the court case, and that shows you their corporate attitude," he says. "They are not going to change their business model unless they are forced to."

Cooper is happy to concede that Windows XP is an improvement over previous versions of Windows. "Microsoft has fixed one of the big problems that a monopolist gets away with: their product was unstable and buggy. Clearly, this operating system is much more stable and has a nice appeal.

"The difficulty is that the other 13 or 14 things a monopolist does have become much worse. Our point is that the system will be just as good if we take away all these monopolistic practices out."

What are all these monopolistic acts? The CFA report cites several areas of concern, from illegal technology and business practices, dating back years and flagged up in the district court trial heard by Judge Thomas Penfield Jackson, to new areas in Windows XP and the company's .NET bundle they claim violate antitrust law.

For Dan Kusnetsky at IDC, Microsoft's entire business is selling its software cheaply, gaining market share, and then using the beachhead that piece of software creates to sell more software and subsequent upgrades on a regular basis. Now, he says, Microsoft is moving to lock users in to that cycle - partly because of the success of its own software means many users, left to themselves, would see no need to upgrade.

"Microsoft noticed there was a slowdown in adoption of new software," says Kusnetsky. "Wall Street... is looking for ever increasing revenues and profitability. What happens when you've saturated the market with software that is so functional that it is literally overkill?

"Well, why not change the licensing rules so they say: 'you will upgrade when we tell you to, or you will no longer get volume pricing'?

"Businesses may look at it and say 'Microsoft is imposing a tax on our business without representation,' and you know how that created a tea party in Boston," he says.

The Consumer Federation has a similar warning over Microsoft's "activation policy" - a crackdown on licensing for domestic users which means they have to register online or by phone in order to unlock a retail copy of Windows XP. The system will mean computer users who own more than one machine (like a desktop and a laptop) will have to buy a copy for each PC. XP users who change several parts of their machine could be forced to reactivate their systems.

"Microsoft has found a way to impose that pricing policy," says Mark Cooper of the Consumer Federation. "But in a competitive market, they would never get away with it."

So what is this outpouring of antipathy likely to mean? In the US, while Microsoft might have escaped a breakup, the courts have ruled - and confirmed this week - that the company has abused its market dominance. Consumer advocates want a "behaviour remedy" which would regulate the company and open the way for a volley of lawsuits from software developers who feel wronged by Microsoft.

As well as the private suits in the US, Microsoft could also face action from European regulators. The EU has wide powers, although, according to Peter Willis, competition expert at Taylor Joynson Garrett, the EU would be unlikely to pursue the path of breaking up Microsoft. More likely would be an order to prevent bundling of certain functions.

"I would have thought it could certainly order Microsoft not to bundle one thing with another," says Willis. "It's done that sort of thing in the past, so if it concluded that there had been an infringement of the rules I would have thought that the most likely remedy.

"There is nothing new in what the commission is doing here. And Microsoft itself has been in trouble with the commission at least twice before."

But perhaps the most worrying response for Microsoft could come from business customers, says IDC's Kusnetsky. "Long term, I don't think organisations like to be brow-beaten into something," he says. "They may feel they don't have the time or ability to deal with it now, but I find for the most part that if you put people in a lose position, they come back later and put you in a lose situation."