Following Bill Gates's internal "Internet Tidal Wave memo" on May 26, 1995 Microsoft began to redefine its offerings and expand its product line into computer networking and the World Wide Web.^[22] The company released Windows 95 on August 24, 1995, featuring pre-emptive multitasking, a completely new user interface with a novel start button, and 32-bit compatibility; similar to NT, it provided the Win32 API.^[23][24] Windows 95 came bundled with the online service MSN, and for OEMs Internet Explorer, a web browser. Internet Explorer was not bundled with the retail Windows 95 boxes because the boxes were printed before the team finished the web browser, and instead was included in the Windows 95 Plus! pack.^[25] Branching out into new markets in 1996, Microsoft and NBC Universal created a new 24/7 cable news station, MSNBC.^[26] Microsoft created Windows CE 1.0, a new OS designed for devices with low memory and other constraints, such as personal digital assistants.^[27] In October 1997, the Justice Department filed a motion in the Federal District Court, stating that Microsoft violated an agreement signed in 1994 and asked the court to stop the bundling of Internet Explorer with Windows.^[28]

Bill Gates handed over the CEO position on January 13, 2000 to Steve Ballmer, an old college friend of Gates and employee of the company since 1980, creating a new position for himself as Chief Software Architect.^[4][29] Various companies including Microsoft formed the Trusted Computing Platform Alliance in October 1999 to, among other things, increase security and protect intellectual property through identifying changes in hardware and software. Critics decry the alliance as a way enforce indiscriminate restrictions over how consumers use software, and over how computers behave, a form of digital rights management; for example the scenario where a computer is not only secured for its owner, but also secured against its owner as well.^[30][31] On April 3, 2000, a judgment was handed down in the case of United States v. Microsoft,^[32] calling the company an "abusive monopoly";^[33] it settled with the U.S. Department of Justice in 2004.^[12] On October 25, 2001 Microsoft released Windows XP, unifying the mainstream and NT lines under the NT codebase.^[34] The company released the Xbox later that year, entering the game console market dominated by Sony and Nintendo.^[35] In March 2004 the European Union brought antitrust legal action against the company, citing it abused its dominance with the Windows OS, resulting in a judgment of €497 million ($613 million) and to produce new versions of Windows XP without Windows Media Player, Windows XP Home Edition N and Windows XP Professional N.