The first independent version of Microsoft Windows, version 1.0, released in 1985, lacked a degree of functionality and achieved little popularity. Windows 1.0 did not provide a complete operating system, but rather extended MS-DOS and shared the latter's inherent flaws and problems. Moreover, the programs that shipped with the early version comprised "toy" applications with little or limited appeal to business users.

Furthermore, legal challenges by Apple limited its functionality. For example, windows could only appear 'tiled' on the screen; that is, they could not overlap or overlie one another. Also, there was no trash can (place to store files prior to deletion), since Apple believed they owned the rights to that paradigm. Microsoft later removed both of these limitations by means of signing a licensing agreement.

Microsoft Windows version 2 came out in 1987, and proved slightly more popular than its predecessor. Much of the popularity for Windows 2.0 came by way of its inclusion as a "run-time version" with Microsoft's new graphical applications, Excel and Word for Windows. They could be run from MS-DOS, executing Windows for the duration of their activity, and closing down Windows upon exit (rumor has it that Windows was intended as a platform to run Microsoft Office applications first, and only later as a general-use GUI system).

Microsoft Windows received a major boost around this time when Aldus Pagemaker appeared in a Windows version, having previously run only on Macintosh. Some computer historians date this, the first appearance of a significant and non-Microsoft application for Windows, as the beginning of the success of Windows.

Versions 2.0x still used the real-mode memory model, which confined it to a maximum of 1 megabyte of memory. In such a configuration, it could run under another multitasker like DESQview, which used the 286 Protected Mode. Later two new version were released, named Windows/286 2.1 and Windows/386 2.1. Windows/286 could run in either Real or Protected Mode, which gave it access to up to 16 megabytes of memory, and Windows/386 included support for the 386 CPU's Enhanced Mode.

Version 2.03, and later 3.0, faced legal challenges from Apple over its overlapping windows and other features Apple charged mimicked the "look and feel" of its operating system and "embodie[d] and generate[d] a copy of the Macintosh" in its OS. Judge William Schwarzer dropped all but 10 of the 189 charges that Apple had sued Microsoft with on January 5, 1989.

more:-http://en.wikipedia.org/wiki/History_of_Microsoft_Windows

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