Nicholas Negroponte, a famous and well-connected tech provocateur, provided the industry’s Big Bang four years ago. At the World Economic Forum in Davos, Switzerland, Negroponte stood up before world leaders and announced his plan to build a $100 laptop that could be given to tens of millions of impoverished schoolchildren in developing nations. After two decades of running the Massachusetts Institute of Technology Media Lab, Negroponte started O.L.P.C.—not, as he says, to throw a bomb at the tech industry, but because he believes that information technology can save developing-world children from poverty. At the time, Microsoft, Intel, and most other tech companies had only small, disjointed next-billion programs in place.

In September, O.L.P.C. began selling its XO machines for $188, nearly double the original target price. O.L.P.C. still hopes to hit the $100 mark, but just hasn’t reached their ideal economy of scale yet. Negroponte originally announced that he would only sell the XO to government agenices in lots of one million of more. He hasn’t been able to stick to that target yet, but once he is filling orders at that scale, his costs of production will drop dramatically. O.L.P.C. forecasts that it will ship 5 to 10 million machines within the next year.

XO, like the Inveneo machine, runs an open-source operating system on an A.M.D. chip. “One by-product of what we’re doing is we’re going to put a lot of Linux desktop boxes out into the world,” says Walter Bender, O.L.P.C.’s president. “We’re not doing it because we’re out to get Microsoft. But if we’re half successful, we’ll change the relationship between Windows and Linux.”

The doomsday scenario for the tech behemoths is all too clear: If XO, Inveneo, or similar systems take hold, programmers will see a huge new market and develop open-source software applications for these machines. Hardware companies might start up in Thailand, India, or China to make XO clones and sell them in regions O.L.P.C. couldn’t supply, thus spreading the platform even further. A vibrant tech ecosystem could develop—one that has nothing to do with PCs based on Microsoft and Intel products. The XO platform might even creep into Europe and the United States, infiltrating an existing industry the way small Japanese cars in the 1970s burrowed into General Motors’ market and ultimately dominated the industry.

Like G.M., the tech giants didn’t see the challenge coming. “When we first saw the announcement about the $100 laptop, it seemed quite incredible to us. How can you make a $100 laptop?” says John Davies, a 30-year Intel veteran who runs the chipmaker’s World Ahead effort. “It’s a really tough goal. It made us wake up. We weren’t doing what’s needed in emerging markets. Maybe we can work a bit harder and go after that marketplace.”

After Negroponte’s 2005 announcement, Intel chairman Craig Barrett took to disparaging the new company, and Intel developed a Windows-based $250 laptop called Classmate. Negroponte claimed, most famously in a 60 Minutes interview in early 2007, that Intel was trying to undermine O.L.P.C. with the Classmate. By mid-2007, Intel had done a neat flip-flop and decided to support O.L.P.C. and get Intel’s chips on some versions of the XO, while AMD chips are still used in the others. On January 4, Intel flipped again, pulling out of O.L.P.C. because, the company said, Negroponte insisted that Intel discontinue the Classmate.

“It’s a big marketplace, and there are going to be a lot of choices (of machines) in that market,” Davies says, by way of explaining Intel’s change of heart. “We don’t know every answer, so we decided to start trying different capabilities. Which ones play out, the market is going to tell us.”

In other words, Intel caved and decided to hedge its bets to make sure A.M.D. doesn’t walk away with the next-billion market.

This explains why Microsoft has closely watched Negroponte. Will Poole, who runs Microsoft’s Unlimited Potential effort, had lunch with Negroponte the day before a industry conference in 2006, at which Negroponte first showed a foam model of the $100 laptop. As Poole recalls, “I said, ‘Hey, fine, I understand you want to take advantage of open source—but there’s also value in commercial software Microsoft has built, and why not find a way to make both work?’ ”