Microsoft and Otto, one of Europe's largest mail-order and online retailers, have agreed to collaborate in the area of e-commerce application development.

The primary aim of their partnership will be to jointly develop online shopping applications -- based on Microsoft Windows technology - across PC, TV and wireless platforms.

One of the projects, Digital Lifestyle Shopping, will be based on Microsoft Windows XP Media Center Edition 2005.

Microsoft plans to demonstrate the interactive shopping system at the Cebit trade show in Hannover, Germany, next month and later in the year at the IFA consumer electronics show in Berlin.

The Otto Group has also agreed to join Microsoft's Smarter Retailing initiative. The initiative aims to help retailers improve sales and operations by delivering advanced applications for digital devices such as smart phones and PDAs (personal digital assistants) as well as RFID (radio frequency identification) tags.