NetTrends: ``Davids' still face a mighty Microsoft
06:38 p.m Nov 10, 1999 Eastern
By Dick Satran
SAN FRANCISCO (Reuters) - Microsoft dominates the desktop and has done so for much of the PC era. But on a narrow patch of the software world there is robust competition and, to borrow a word, innovation.
In the aftermath of Judge Thomas Penfield Jackson's ruling that Microsoft wields monopoly power, investors have been bidding up the stocks of ``non-Windows' operating system producers on the view that the competitive threat from the Redmond, Wash., software giant has been reduced.
In interviews, executives at some of Microsoft's competitors said they expect Jackson's stern finding of facts to level the playing field slightly.
But it will not lead to any fundamental shift in the landscape. Indeed, they still see Microsoft as the leading player to be dealt with, and it's even possible judicial remedies curbing its activities in the personal computer market will force it to push harder into new, non-PC markets.
``This is labeled as a finding of fact but it doesn't have much impact yet on the facts,' said Jean-Louis Gasse, chairman and chief executive offficer of Be Inc. ``Microsoft is a company that knows the law and it can run the clock: Appeals can go on forever. Unless there is an injuction limiting them in some way, it's not clear that this will have any material impact.'
Be Inc, which Gasse founded after leaving Apple Computer , makes an operating system aimed at multimedia applications and computer devices, like electronic books. Its stock, which had been languishing for months, quadrupled in the two days following the judge's ruling. It leaped from $3.50 Friday to as high as $18 Wednesday before closing at $15.30, down 25 cents. on Nasdaq.
Gasse would make no direct comment on the stock price, but shared at least some of the investors' enthusiasm.
``Even if nothing material has changed, the psychology has changed,' said Gasse. ``We are extremely optimistic, because the light being shed on Microsoft's practices will somewhat limit their ability to do what they have been doing in the darkness.'
The government's case is based on Microsoft using its Windows personal computer monopoly to push PC makers to use its Internet browser. But the battle for the PC is largely over, and attention has shifted to computer servers, hand-held computers and new Internet devices, where nobody dominates. Be is among those competing in this market.
``In the new space of the Web appliances, or set-top boxes, Microsoft might be dealing with (hardware manufacturers like) Matsushita, Hitachi or Sony and after what they've seen Microsoft do with PC makers, they might not want to go througth the same treatment,' Gasse said.
Microsoft has put more than $10 billion into the so-called 'post-PC market' with investments in cable companies and set-top ventures it hopes will adopt its operating system, Windows CE, the stripped-down version of its PC software.
Cable television set-top boxes in the United States alone will amount to a market of 60 million units, compared with the installed base of Windows PCs of about 200 million.
Added to cable boxes are Internet devices, computer games and increasingly sophisticated ``embedded' computing devices in machines, meaning there are nearly as many 32-bit, high-speed processors running that are not inside PCs. A new generation of Internet-connected mobile telephones will add millions more.
``What's changing is that embedded devices are starting to look more like and inherit a lot of characteristics of the PC platform,' said Curt Schacker, vice president of operating systems specialist Wind River Inc., based in Alameda, Calif. 'The Internet is what's done that.'
By taking the focus of computing from the desktop to the network, PCs don't have to do as much. Cisco System Inc. already dominates in the router market that runs the Internet, and Microsoft is fighting it out with Unix and Linux-based servers, the machines that produce and store the Internet's content.
Indeed, there are parallels between Microsoft and International Business Machines Corp in 1982, when a dramatic shift in the market led to the dismissal of an antitrust suit against IBM. The mainframe business was declining as computing shifted to smaller models. The key difference is that IBM's market share of 65 percent back then is far less than Microsoft's 90 percent. And the post-PC market is still emerging, so there are no powerful new players to challenge Microsoft.
``All of our revenues combined just about match what Microsoft spends in marketing,' said Wind River's Schacker said. Wind River -- whose stock has jumped more than 50 percent since Jackson's ruling -- is one of the leaders, too, in the market, handling the embedded software for space missions, Manhattan's traffic lights, and scores of other applications.
But despite its widespread use, Wind River has revenues of only about $130 million. Still, Schacker believes, ``Wind River can become a $1 billion company in not too much time' because of the powerful growth of non-PC computing.
Microsoft's Windows CE has been slower to win a foothold in the emerging markets than the specialized companies like Wind River, and 3Com Inc.'s Palm, whose PalmPilot created a strong niche in the device market. Microsoft's desktop software is designed to run on stand-alone machines, said Gasse and Schacker, putting it at a technology disadvantage to the more time-sensitive network systems.
But neither Wind River's Schacker nor Be's Gasse would rule out Microsoft making big gains and persisting. ``The way they've been buying into cable properties left and right is clear evidence that they see the importance of Web devices and they want to dominate that,' said Gasse.
``They have the reputation for getting it right the third time they try something,' said Schacker. ``And with their marketing capablity, all of the resources, the talent they have, it makes me envious. They have the people. But I don't think that's the whole ballgame. Their technology and their business models might not be right in the new environment.'
Microsoft's ability to move on the new landscape could be constrained, too, with the government looking over its shoulder or putting limits on its business and its ability to set standards.
``It's going to be a more complicated world, chaotic world,' predicted Gasse. ``But I'd rather have that than a monolithic one.'
((Dick Satran can be e-mailed for comment at dick.satran@ reuters.com))
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