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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Ex-INTCfan who wrote (29738)	9/19/1999 12:55:00 AM
From: taxman	Respond to of 74651

Microsoft Storms the Web Again By KENNETH N. GILPIN the personal-computer software vein it has mined with mind-boggling success isn't about to dry up, but Microsoft is busy planning how to tap into the next Mother Lode. The good news for shareholders is that the executives out in Redmond, Wash., know that tomorrow's gold is on the World Wide Web. The bad news is that for the last few years lots of other companies have been prospecting the Net. Most analysts agree that the market for Web-based software is certain to be bigger than it is for PC-based software, so there is much money to be made. But it is an open question how much of that coin will be scraped up by Gates & Co. Roger McNamee, a general partner at Integral Capital Partners, a Menlo Park, Calif., firm that makes venture capital and public investments in technology companies, took time last week to discuss the magnitude of the challenge facing Microsoft. Here are excerpts from the conversation: Q. Let's be clear. The future may be Web-based software. But Microsoft's days as a cash cow in the PC software business are far from numbered, right? A. Microsoft's extraordinary success with Windows and related applications means that even under the most successful scenario, the Web-centric impact will be some time coming. The fact that Microsoft controls Windows and Office means that its financial future is secure for the next four or five years, at least. I should add that we own the stock, and have forever. We sold some of our position earlier this year, and I look back on that decision with some regret. But the fact they are refocusing on the Web is very important. The first rule of the Internet is, don't wait. Any strategy you develop today is better than the perfect strategy you develop three years from now. Put another way, you can't learn if you don't play. Q. Last week, Microsoft trotted out some executives to underscore its commitment to Web-based software applications. Isn't this a song we have heard before? A. In 1995, Microsoft made a strategic shift from ignoring the Net to making it an absolutely top priority. Still, the company has remained remarkably PC-centric. And if it is open to any criticism, it is that it has become extremely Windows-centric. At this point, it is essential for Microsoft and the company's morale and cultural well-being that it make more progress in Web infrastructure than it has in the last three or four years. What they did last week reflects the understanding at Microsoft that they need to recalibrate everything they do to Web time rather than PC time. Q. Why should it recalibrate to Web time? A. Microsoft's problem over the next couple of years will be in human resources. One place the government's antitrust suit has really hurt Microsoft is in morale and in recruiting. A very significant number of Microsoft executives have retired over the last couple of years; a number of high-quality managers have moved on to Net start-ups. And I suspect it has been hurt in the recruiting world. At Stanford, for instance, the culture has shifted toward Web start-ups. There is a sense that Microsoft is no longer as cool a place to work these days as it once was. I believe technology companies share some characteristics with sharks: keep moving or die. One of the central requirements for moving forward is the ability to recruit your fair share of the best and brightest coming into the industry. Q. Is there reason to think that margins for Microsoft, or any other software maker for that matter, will be as big on the Web as they are in the PC software world? A. It seems unlikely that anyone will gain the economic leverage Microsoft has in the software office business. But viewed as a whole, I think a very, very attractive business will be produced. Q. Who do you see as Microsoft's principal competitors? A. If you ask Microsoft about competition, they would cite Sun Microsystems and America Online and Novell as clear competitors on the Web. But right now, almost all of the innovation is coming from the start-up community, which is not unusual. At the end of the day, I expect you will be able to count dozens and dozens of companies that are Microsoft's competitors. I don't expect them to be able to step into the Web infrastructure world and just take over, the way they did PC software. But I would not count them out, either. Q. What is likely to be the best indicator of how well Microsoft is doing in the Web-based software business? A. If you are an active Web user, the key thing to track is the percentage of Web-based, must-have software that comes from Microsoft. These days, those sorts of things are coming from someone other than Microsoft. Copyright 1999 The New York Times Company regards