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A parting shot before hitting the bed for MSFT foes.. with love from Ike
<<Microsoft's Killer Apps
The group could trounce the competition
Warning to Microsoft Corp.'s enemies: Be careful what you wish for. You may get it in ways that you don't like. While a split-up of the software giant seems likely to stifle the company's operating system group, it would unleash the applications business, allowing it to forage far and wide in new markets.
Indeed, ''Apps Inc.'' would be one of the most powerful forces in techdom. With 90% of the desktop-applications market and almost $14 billion in sales this fiscal year, Apps Inc. would combine Microsoft Office--desktop apps such as Word and Excel--and consumer products and services. Today, it accounts for about 60% of the company's revenues. And if Microsoft (MSFT) is broken up, Apps Inc. would take the lion's share of the company's $18 billion cash hoard. Perhaps just as important, the group's bosses won't be obliged to make everything they do reinforce the Windows franchise. Since the core Windows applications market is mature, to grow rapidly they'll be forced to try new things. ''The broken arms of Microsoft will need to be more innovative if they're going to win,'' says the former CEO of a software company that Microsoft vanquished in the 1990s.
SUCCESS STORY. Remember WordPerfect, Borland, Lotus, and Harvard Graphics? They were the leaders in word processing, databases, spreadsheets, and presentation graphics. Now they're gone--or in different businesses. Microsoft offered up easy-to-use Windows versions of the standard desktop products and then combined them into Microsoft Office, which crushed the competition. In fact, it was the immense popularity of those applications that made Windows itself such a success. An independent apps company would no longer have the tie to Windows--but it would have distinct advantages over rivals, including a veteran staff of programmers and marketers who have a track record of success.
So now, if there's a breakup, a new generation of software companies is at risk. While Microsoft lagged on the Web and stuck to its Windows-centric strategy, a host of companies emerged to sell applications for running business-to-consumer or business-to-business Web sites. Altogether, these markets, which Microsoft has so far kept out of, are expected to grow from $27 billion last year to $78 billion in 2004, according to AMR Research.
Thus far, Microsoft has focused on supplying the operating system for server computers--and made allies of companies that build products on top of it. With a breakup, ''the applications company would be quite unfettered and might get into a much larger set of businesses,'' says Carl Howe, an analyst at Forrester Research Inc.
Microsoft is loath to talk about any post-breakup strategy. Robert Muglia, group vice-president for the Business Productivity Group, which includes the applications and tools business, says ''it would be hard to speculate'' about new directions. But according to analysts, an obvious target for Apps Inc. would be retooling its programs to run on other operating systems. It might create versions of its Exchange e-mail software or SQL Server database for Linux or for Sun Microsystems Inc.'s Solaris operating system--which are popular for running Web sites. That could hurt new Linux application companies--and offer competition for IBM's software division and Oracle Corp.
Another likely target is e-commerce applications. Microsoft already sells Commerce Server and Site Server, which companies use to build Web sites. That's only a small step away from the Web content-management and sales tools sold by the likes of BroadVision (BVSN), Vignette (VIGN), and Intershop Communications. ''I think they'll be forced to get into these new markets,'' says Pehong Chen, CEO of BroadVision Inc.
Software upstarts are expecting to have targets on their backs. With a breakup, ''you might have a Microsoft Office for Linux, which could hurt us,'' says Bernie Thompson, president of VistaSource Inc. in Westborough, Mass., which sells a suite of desktop applications for Linux.
The company left out of the post-breakup innovation party would be Windows Inc.--Microsoft's operating-systems group. The breakup order puts restrictions on its ability to add features. Still, some industry observers believe it would be best for consumers if Microsoft concentrated on making its operating systems more reliable and resistant to hackers--a different, but no less important, form of innovation. ''Making systems bulletproof takes some big ideas,'' says John Seely Brown, chief scientist of Xerox Corp. (XRX) In a world with two Microsofts, there would be no shortage of those.
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