Is the unimaginable happening? Believe it or not, there are several signs that Microsoft Corp., the worlds unchallenged leader in personal computing software for business, is starting to lose some of the monopolistic grip it has had on the industry for nearly two decades. The most obvious red flag, of course, is the challenge the Redmond, Wash.-based software giant faces at the hands of the U.S. government. The Justice Dept. reopened its investigation of the software firm last fall "to determine whether Microsoft is illegally extending or preserving its monopoly in operating systems," according to a Justice spokesperson. Also, at least 11 state attorneys general are investigating Microsoft for anti-trust violations. Besides the Justice and state investigation, which experts speculate may now threaten Microsofts next big product due out later this year -- Windows 98 and its integrated browser -- there is the Congressional inquiry. In the latter venue, Sen. Orrin Hatch (R, Utah) labeled Microsofts dominance "a monopoly." Also likely to chip away at Microsofts hegemony, software industry experts say, is an industry-wide sea change favoring more economical network computing. Personal computers and the associated software are simply too costly to upgrade and maintain, many users claim. "Personally I think Microsoft will lose that level of dominance as a result of the shift to network computing," says Tom Austin, a vice president at Gartner Group, an information-technology research firm based in Stamford, Conn. As if those challenges werent formidable enough, Microsoft also faces serious assaults on its dominance from other quarters. These include:
- Java, Sun Microsystems Inc.s popular Web-based operating system. Java by itself has the capability over time to dominate the Internet-intensive landscape of 21st-century computing, ultimately eroding the need for PC-based operating systems. It could take a decade, but like global warming, the trend toward Java-centric computing cant be denied.
- The failure of Microsofts own Windows NT system to support large numbers of corporate users, especially those trying to access big corporate databases.
- The growing backlash on the part of corporate buyers against having to purchase new PC hardware and software every two or three years.
But almost no one envisions Microsoft losing its dominance in PC software anytime soon. "Microsoft will not drop to a point where [it does not have] a majority of the market," says Austin. But the software giant might find itself having to share some markets with competitors.
The most salient indication that a new era is dawning on Microsoft, of course, is the browser battle being waged in federal court. In case youve been sequestered on Venus for the last few months and missed the brouhaha, the issue at hand is whether Microsoft has unfairly used its monopoly in personal-computer operating systems with its ubiquitous Windows product by forcing PC manufacturers, and by extension consumers and businesses, to purchase its Internet Explorer browser. Microsoft claims the two are indelibly linked; the government says they are separate but bundled, as are Microsofts other popular desktop software products such as the word-processing and spreadsheet programs, Word and Excel. The possibility that the government will insist that Microsoft unbundle its browser from current and future operating systems could, over time, have the dual effect of not only reducing Microsofts market share in the browser business, but also of enabling a competitor such as Netscape Communications Corp. to continue to compete -- and possibly flourish -- in that market. And as if that werent enough trouble on the legal front, Microsoft, like some great-antlered but aging moose being harried by a pack of wolves, also must fend off a similar attack by several states attorneys general. Theyre also looking to draw blood over the browser-bundling issue. And not to be left out by their peers in the judicial branch, the recent Senate hearings on Microsofts practices in the software business left Chairman Bill Gates looking like a hunk of Beltway road kill. Still, recent history suggests that its unreasonable to expect that the worlds most successful software company will come tumbling to earth anytime soon, if at all. Time and again, Microsoft has proven itself a worthy competitor to any and all adversaries. Moreover, Gates has demonstrated an almost uncanny ability to adjust his business strategy to whatever market shift or challenge comes along. For instance, Microsofts response to changes in computing has been to adapt to and then attempt to dominate the new technology. That was the case in the browser market, where Microsoft initially was caught off guard, denying that the Internet and the Web-based computing craze was worth getting involved in. Gates himself has admitted he missed the boat early on -- despite warnings from underlings -- when it came to the Internet. Once it woke up, Microsoft moved aggressively, introducing its own browser, Internet Explorer, and refusing the request of PC manufacturers to offer Windows without it. The result has been that Microsoft has cut Netscapes once-dominant 80% market share to less than 60%, with Microsofts Internet Explorer closing in fast. The swift recovery took most technology users by surprise. Dennis Courtney, for one, thought Netscape was going to "break Microsofts hold. But Microsoft came on so quickly in the browser market," says the CIO at Dunlop Tire Corp., Buffalo. "They completely demolished Netscapes threat by building the browser into Windows 95." Of course, the unknown factor is the monkey wrench the Justice Dept. could throw into Microsofts ability to leverage its dominant Windows operating system to control other parts of the software industry. Some observers predict the feds will go further. "The government clearly has indicated it wants to file a broader case," says Scott Winkler, vice president for research at Gartner Group. "It believes Microsoft is illegally monopolizing the market." The end result, Winkler says, is that the government "could reduce Microsofts grip on the desktop world." And if the feds dont go beyond the browser issue? In that case, other types of business software products, such as groupware, will be taken over and dominated by Microsoft, analysts predict. Similar to what happened in the word-processing and spreadsheet markets, where Microsoft dominates with 80% and 79% shares, respectively, the worlds largest software maker now is gradually closing in on control of the groupware business. Currently, IBM Corp. leads this market with the popular Lotus Notes messaging and information-sharing system, and its Web-enabled edition, Domino. Big Blue has been quietly losing market share in this segment to Microsoft. Analysts say its only a matter of time before Microsoft takes over the groupware space. "We think Microsoft is three or more years away from catching Lotus," concludes Gartners Austin. Another example is software for online analytical processing (OLAP). Successful companies such as Arbor Software Corp., Cognos Inc., and a host of healthy competitors have had this lucrative market to themselves. These companies provide sophisticated data-analysis software that helps business people "slice and dice" complex pieces of information across several factors, or "dimensions," at once. For instance, with a multidimensional OLAP system, a user can "drill down" and find out how many green widgets were sold by a particular salesman to chain stores in Nevada during the month of September and whether they were sold at a discounted or retail price -- all in a single query. Now Microsoft is getting into the OLAP market. Some experts have said they believe Microsoft plans to bundle its product, called Plato, into its SQL Server 7.0 database at no added cost -- basically giving it away. Arbor, which charges roughly $3,500 per user for its software, will be hard-pressed to convince IS managers to buy its product when they could get Microsofts for nothing.
Users Weigh In
Microsofts hardball way of competing with other software companies is what attracted the attention of the governments antitrust watchdogs. What do those who use the software think of Microsofts competitive practices and their effect on the software industry? Technology users are of two minds. Some decry what they see as a lack of choice resulting from Microsofts dominance of desktop applications and wish they had more alternatives in their buying decisions. "Technology users tell us they feel as though their choices have been limited," says Gartners Winkler. But others say Microsoft shouldnt be harassed by the feds and that the company is merely playing by the hard-nosed rules of tough capitalism in an unforgiving technology market. Taking a pure free-market view, Dennis Benner, vice president and CIO at Fluor Corp., an Irvine, Calif.-based worldwide construction giant, thinks Microsoft should be left alone. "Microsoft is a very aggressive competitor," Benner says. "I think there is plenty of choice in the marketplace, and Id rather rely on market forces than on government intervention." Dunlop Tires Courtney is more evenhanded, but worries about what he sees as a negative impact on competition and innovation. "In some respects, Microsoft shouldnt be punished for working within the American capitalist model," he concedes. "But when the market runs amok, you need some governmental influence. "The decisions and choices we have are being impacted by Microsofts universal dominance. We use some of Microsofts products, but we are increasingly in a situation where we want to look at another vendor, but we cant go with that vendor, because of the question over their long-term solidity. Anytime you compete with Microsoft, there is a strong chance of losing." Having one dominant software vendor, Courtney says, ultimately could result in less innovation, not more, because of a lack of competition. "If the Justice Dept. could help spread out the competitive playing field, it would give us benefits such as weve seen in the telephone industry. Otherwise, if were not careful, we could end up with the software equivalent of black phones in the 21st century." Martin Piszczalski, president of Sextant Research, an Ann Arbor, Mich., information-technology research firm specializing in manufacturing, points to Microsofts initial resistance to the Internet. "If the Internet couldnt have gotten off the ground without Gates blessing, it never would have happened," he says. "When one player is so dominant, it definitely has a chilling effect on the industry."
The Java Challenge
Even without remedial action from the feds, though, Microsofts dominance in its bread-and-butter market -- desktop operating systems -- appears in jeopardy, observers say. The biggest reason is Java, the widely accepted programming language for developing software applications for the Internet. Created by Sun Microsystems, Java would obviate the need for Windows in the new world of network computing, where most software applications reside at the server level. In its December issue, the investment magazine
called Java "arguably the greatest threat Microsoft has ever faced." As with the onset of the Internets popularity, Microsoft initially tried to give the cold shoulder to this newcomer. "Microsoft initially dismissed Java as an immature language," states a December 1997 report by Gartner Group. But once it became clear that business customers preferred Java as a means to write new software applications for use on the Web, Microsoft obtained a Java license and introduced its own programming language called J++. Indeed, the Java uprising challenges the very monopoly of Windows itself. "There are hundreds of thousands of people working on Java products today," says Dick Cook, president and CEO of Mapics Inc., an enterprise-resource-planning software firm in Atlanta. This acceptance of Java by large numbers of software developers automatically makes the Windows desktop operating system less essential to the future of computing. For instance, Oracle Corp., one of the leaders in enterprise software for business, announced last December that it will rewrite its entire family of applications in Java. But Microsoft executives say Java poses no real danger to Windows. "As a platform or alternative operating system, we dont believe in Java," says Tod Nielsen, general manager for developer relations at Microsoft. "A platform that could make Windows irrelevant obviously would be a threat." Microsofts response to Java, analysts say, has been to try to convert the Internet programming language to a sort of an island colony of Windows, so that it works only on Windows-based machines. Thats why Sun Microsystems has sued Microsoft, charging that the software firm is corrupting Javas purpose -- its cross-platform capability. In its latest attempt to water down Java, Microsoft on Mar. 11 unveiled new tools for programmers to create Windows applications using Java. Microsofts Nielsen says the new programming tools "are optional things for developers to take full advantage of Windows." But analysts disagree. The idea, they say, is to torpedo Java as a separate operating system, thereby relegating it to more of a subset of Windows. Unfortunately for Microsoft, the Java juggernaut just rolls on, gathering momentum, developers, and users. According to Gartner Groups analysis, Microsofts "attempts to co-opt Java by promoting its own . . . extensions to Java have not worked."
The software industry isnt alone in moving swiftly to embrace Java. Computer hardware companies also see the handwriting -- er, coding -- on the Internet wall. IBM began offering its Network Station machines built to run Java-based software applications last December. "We see very substantial growth in Network Station sales in 1998," says Keith Gaylord, product-marketing executive for network computers (NC) at IBMs Somers, N.Y., office. The reason for the popularity of network computers is lower overall cost of operation. "By using Java technology and network computers, we are able to deliver real-time instructions directly to the shop floor and realize the benefits of centrally managed applications -- significantly lower maintenance and support costs," says Phyllis Michaelides, program manager at AlliedSignal Inc.s Phoenix plant, which is using Sun Microsystems JavaStation network computers. The cheap, low-end machines that promise little or no management or upgrade hassles certainly have hit a sweet spot in the industrial market. "Our conservative estimate is that half of all corporate desktop computers are used by people who dont need PCs," Gaylord adds. Analysts project bullish sales of NCs. According to Gartner Group, by 1999, two out of five enterprises will deploy network computers, and three in five will use them by 2001. "Starting in late 1999, network computing will become dominant," predicts analyst Austin. And hes not alone. Research firm Jupiter Communications expects that 36 million NCs will be in use by 2000. The bulk of these machines will be connected to the Internet and will most likely use the programming language of the Net -- Java. Among the companies that have bought IBMs Network Stations are Prime Equipment, Bombardier Capital Mortgage, Roberts Express, Walco International, Champion Auto Stores, Rainbow Apparel, Steelcase Strafor Group, American Eagle, and General Accident Fire & Life Corp. "The NC means easier installation, faster software updates, and improved security support and data backup," says Max Currie, IT director at General Accident in London, England. Ultimately, the popularity of these machines and their use of Java represent a kind of software industry El Nio that could wash away a pretty sizable chunk of Microsofts private beach. And a sizable piece of that real estate is likely to land on IBMs shores. Having centered its entire corporate strategy around network computing, Big Blue is putting all its hardware might and know-how behind making the network computer concept a reality. "Our customers have discovered this year that network computers are a cost-effective choice for a surprising range of everyday and sophisticated business functions," says Bob Dies, general manager of IBMs Network Computer division. Companies queuing up to buy NCs are equally bullish, largely from a cost standpoint. Prime Equipment, a renter of industrial equipment in Houston that recently installed 600 IBM Network Stations, expects to save $765,000 on initial hardware costs alone versus the cost of PCs, as well as $5 million a year in reduced maintenance expenses over the next five years. "Employees love the Network Stations and wont give them up," says Travis Singleton, technology-development manager at Prime. Network Station users would not go back to PCs, he adds. Steelcase Strafor, a manufacturer of office furniture in the UK, is replacing both PCs and dumb terminals with Network Stations at three manufacturing plants. Steelcase managers expect to reduce both hardware and maintenance costs. "Our IT staff can set up an NC user in half an hour rather than half a day for a PC user," says John Sanford, IT manager. In this groundswell of movement to network computing, Microsoft stands to lose a great deal. One reason is that network computer applications are run on powerful midrange computers called servers. Even Microsoft executives acknowledge the trend. "The business world is moving its applications to the server," says Graham Anderson, group product manager for the popular Microsoft SQL Server database. While the trend is likely to favor Microsofts Windows NT server operating system, it also bodes ill for the now ubiquitous Windows 95 and other desktop-based Windows versions. Thats because the new network computers no longer require the kind of number-crunching power of a state-of-the-art $900 Pentium chip, let alone the sophisticated word processing, spreadsheet, database, and other applications of the kind that Microsoft bundles together on the PCs that are sold by Compaq Computer Corp., Dell Computer Corp., and a host of other PC manufacturers. These or similar applications will be available, but users will download them via a network connection to a central server. The concept itself is anathema to those in Redmond, Wash., observers say. "To centralize their software and make it available over the Internet undermines Microsofts whole business model," says Rich Finkelstein, president of Performance Computing, a Chicago-based IT consulting firm. Microsoft executives certainly are aware of the potential impact these new slimmed-down desktop machines could have on their core business and have taken steps to respond. Last year the company brought out its Zero Administration for Windows product, which is designed to go head to head with the network computer. "Microsoft is adapting to some extent to network computing," Austin adds. A key piece of Microsofts network computing strategy is to provide both desktop and network software for the Windows-based terminal, a desktop machine that uses the Windows operating system but receives applications downloaded from a network. The company also expects to offer a version of Windows NT Server that will run both Windows- and Java-based software applications. International Data Corp. (IDC), an IT research firm in Framingham, Mass., estimates that sales of Windows-based terminals will expand at a 102% rate per year until 2002, versus just 71% annual growth for the network computer. "It sure looks like Microsoft has moved in the right direction," says IDC analyst Eileen OBrien.
Finally, many corporate computing users are tired of the constant need to upgrade both hardware and software every two or three years to keep up with the latest from the "Wintel" software-hardware alliance. "Microsofts approach has a great deal of complexity, with resident data and applications to be upgraded, and with viruses and corruption of data on the desktop," says IBMs Gaylord. Some say the rebellion has already begun. "Microsoft is getting a ton of backlash on Windows 98, because corporations are just not interested in it at all," says Performance Computings Finkelstein. "Users hate what Microsoft is trying to do, to tie everyone to their unique technology. To work well on the Internet, you must be neutral -- you cant work on Microsoft alone." Microsofts predicament, he says, is that it cant afford to change a business model that depends on convincing vast numbers of corporate users to upgrade to a new version of its operating system every two or three years. He says the only reason Microsoft integrated the Internet Explorer browser into Windows was so it could continue to keep business and consumers "hooked" on the Windows operating system in a world that is fast converting to Internet-based computing. Finkelstein complains about the time, headaches, and effort required to upgrade to a new issue of Windows. In contrast, the network computing concept is based on simplicity for the user, with the complexity at the network level, similar to the way telephones operate. Microsoft executives say they are keenly aware of the desire on the part of many users for greater ease of use. "Our top priority is the simplicity initiative," Gates told those attending a Mar. 6 Microsoft/Intel workstation press conference on the two firms move into the market. However, he offered no specifics. In sum, Microsoft is unlikely to lose its dominant franchise in desktop software anytime soon. But a volley of pressures on the software firm have resulted in a few competitive arrows sneaking through chinks in the giants armor. And the combined effect theyre having on Microsofts dominance is starting to take its toll.