It strategy – A blessing in disguise for Microsoft?

The shock news of the usually stagnant pre-Christmas period was the US ruling preventing Microsoft from bundling its Internet browser software with its Windows operating system. While only the most enthusiastic Microsoft haters saw this as a step towards the decline or break-up of the software phenomenon, it does have significance for anyone involved in specifying large IT systems or formulating IT strategy.

This is not just a blow to Microsoft’s Internet Explorer product. If it were just a setback to its competitive race with arch-rival, Netscape Navigator, few would put their money on volatile start-up Netscape against the marketing dollars of the Seattle giant.

More significant are two implications – that the US authorities are finally getting tough on Microsoft, and that the decision is sure to boost the cause of those who are advocating a whole new approach to computing, one that bypasses the Microsoft world of PC and Windows and instead relies on accessing large databases via small desktop or mobile appliances using a Web browser such as Navigator. The judgement on whether the network computer/browser model will eventually replace the current PC/Windows approach is a critical one to anyone planning major IT purchases over the coming few years. The anti-Microsoft judgement is sure to gladden the hearts of companies and consultants that have taken an early gamble on the new model, such as Safeway or National Westminster Bank.

But these are early days. Microsoft is sure to counter the decision in the law courts, and anyway the judgement only suspends it from bundling Explorer, while information is gathered for a more detailed decision.

And even if it has to compete on a level playing field for once, it has greater resources than most of its rivals.

But the decision does deal a serious blow to Microsoft’s apparent invincibility.

For the first time, the US authorities are taking the view that MS is no longer a shining example of American entrepreneurialism, but an established monolith with too much power for its own good.

And at a critical time, when large companies are deciding on their computer strategies for the next century, the judgement does raise sufficient nervousness about the future of the Windows way of computing to make experts look more carefully at the network computer alternative.

Lawsuits may only profit the lawyers, but they raise fear, uncertainty and doubt among everybody else. The unshakeable belief of many consultants and buyers that Microsoft would never go away and that Windows was a surefire choice for the desktop has been eroded. For the first time we can see a future without Microsoft – or at least not in its current position of dominance.

And this is happening in the giant’s desktop heartland. While the company has never managed to completely convince the corporate world of its credentials as an enterprise supplier, it has been very sure of its ground as the supplier of choice at the desktop end. But now Netscape and its allies are setting up an alternative that could exclude Windows altogether.

Microsoft can compete in this market, even if it does become a reality.

But it would be unlikely to rule it. Bundling Explorer with Windows ensured that people could adopt the network computer approach but still within the PC/Windows environment.

Ironically, this may be what catapults Microsoft into being a serious enterprise supplier at last. Forced to be more competitive, and to stop relying on a guaranteed source of income, many companies have reinvented themselves and sprung back in fighting mood. And Microsoft is one of the few large IT suppliers that has succeeded in growing to a market leading position but has remained flexible – look at how swiftly it changed from sniffing at the potential of the Internet to elbowing into the browser, Net commerce and other markets in an aggressive way.

Many observers believe the anti-trust rulings against IBM in the ’70s, which forced it to share key technologies with rivals and to break up some of its businesses, increased rather than dented its success. This was because opening up its technology broadened the market for products that, in the end, it controlled – and the rulings made IBM realise that it could not run the market all its own way. It became, temporarily at least, nimbler and more aggressive and spread into new sectors with great success.

The same may happen to Microsoft. If it cannot guarantee a virtual monopoly of its desktop space, it will see margins fall amid fiercer competition, and this will drive it inevitably into new, more profitable areas. These are likely to be both up and down from its traditional base – accelerating the moves it has already made into the enterprise and home/children’s markets.

Microsoft is already focusing on some of its more corporate-oriented products, notably applications such as Office and the Back Office server suite, as the next phase in its battle to see off the network computer brigade. As Netscape, Oracle and Sun line up behind a non-Windows world based on network computers and the Java language, Microsoft is incorporating Internet functions into Office and other key products in an effort to stave off Java in the enterprise – even if it fails on the desktop.

So any IT decision made now will be a knotty one, but the Microsoft legal setback may end up boosting its position rather than killing it – if it proves as flexible in adversity as it has in the past.

Caroline Gabriel is a group editor in VNU’s IT portfolio.

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