Microsoft to shift focus to linking technologies

Friday, June 23rd 2000, 12:00 am
By: News On 6

Gates says plan not affected by antitrust suit

REDMOND, Wash. – Microsoft Corp. unveiled a highly anticipated initiative Thursday for transforming the 25-year-old software giant's business model, bringing a transition that chairman Bill Gates called a "bet the company" strategy.

The road map, detailed in presentations at Microsoft's headquarters, aims to introduce standardized technology that would allow personal computers, cellular phones, handheld organizers and other devices to communicate more easily with one another.

Mr. Gates said the plan was not affected in any way by the company's antitrust travails with the federal government, nor was it meant to influence the appeal of a federal judge's order this month to break the company in two.

"The direction we've outlined today is one we think the industry will go down," Mr. Gates said. He said Microsoft has a unique contribution to make toward standardization because of the billions of dollars it invests in research.

Some analysts attending the unveiling agreed.

"Nobody else can deliver this," said Tim Bajarin, president of Creative Strategies Research International, a technology research firm in Campbell, Calif. Moreover, customers desperately want their devices to "talk to each other," he said.

Microsoft's initiative, dubbed Microsoft.NET, would seek to reposition the company for the Internet age, transforming the focus of its business from packaged software to Web-based services.

Mr. Gates said the plan reflects the bulk of his work since he stepped down as the company's chief executive in January to serve as chief software architect.

The company's co-founder also said the Microsoft.NET initiative is the most significant change at Microsoft in a decade, since its shift to the graphically oriented Windows program made point-and-click simplicity standard in personal computing.

For all the opportunities the plan presents, it also is fraught with serious risks, said analysts attending the daylong meeting at a conference center on the main Microsoft campus in Redmond, outside Seattle.

They noted that Microsoft is now largely dependent on revenue that it receives each time a personal computer is sold equipped with the Windows operating system and the Office applications suite.

Instead, as a services company, it would receive regular payments for the rights to use its latest software programs, which would be accessible to users over the Internet. In that way, it would act more like a telephone or cable company.

"I think the business model issues are unsettled," said Rick Sherlund, an analyst at Goldman, Sachs & Co. "They're shifting from having their expenses covered up front to receiving payments over time."

But, he added, other software companies will be facing the same challenges.

Steve Ballmer, Microsoft's president and CEO, said the transition would take place over an extended period, and that the company expects to continue to sell packaged software for years to come because many customers will want it.

Another challenge for Microsoft, whose hyper-competitive conduct in the PC industry led to the landmark antitrust case, will be convincing other players in the technology industry that it can be a fair partner, analysts said.

Microsoft executives repeatedly talked up opportunities to work together with other companies throughout the technology industry.

"We are a source – we must be a source – of opportunity for many third parties with NET," Mr. Ballmer said. "We cannot succeed without that."

J. Paul Grayson, president and chief executive of Alibre Inc., a Richardson-based start-up that sells a Web-based service to help product designers collaborate, said he has already signed on.

"We bet our company on them doing this two years ago," said Mr. Grayson, who took a similar risk in 1985 at Micrografx Inc., which offered the first graphics program based on Microsoft's Windows operating system. "It's been a good bet so far."

Mr. Grayson attended the conference and appeared in a video at the event to endorse the Microsoft effort.

Some analysts said they took the Microsoft executives at their word that the initiative is driven by the landscape in the industry, not the legal dispute with the government.

But Gary Beach, publisher of CIO magazine, which serves corporate technology managers, said Microsoft was signaling to the government with its new strategy that it believes it can outrun the legal system.

"The message here was, 'Break us up. We don't care,'" Mr. Beach said.

For Microsoft, he said, the key to the government-ordered split is that the Internet Explorer browser would remain part of the applications side of the company. The other part of the company would be devoted to the Windows operating system.

"What I heard was the Justice Department case and Windows are irrelevant," Mr. Beach said.

But Microsoft, along with other analysts, said Windows is a critical part of the future strategy.

Mr. Grayson said it would be a "tragedy of epic proportions if the government interfered with Microsoft's ability to do this."

Microsoft executives offered few details on specific software products the company would offer, but the company did talk about which technologies would be at their core.

They said the initiative relies largely on the XML or Extensible Markup Language standard, which can act as a sort of universal language for data, making all kinds of documents more interchangeable.

Using XML, two companies can exchange documents and do business with one another, even if they use different software applications.

XML effectively enables one system to translate what the other sends.

Another advantage of XML is that it allows information to be used in a variety of formats for different devices, including PCs, interactive television and Web-enabled cell phones.