Despite Antitrust Efforts, Microsoft Rules in Government
Offices
By STEVE LOHR
ven as it steps up its antitrust pursuit of Microsoft Corp., the government is becoming
increasingly dependent on the company's software.
The U.S. Army, Navy, Social Security Administration, Health and Human Services Department,
Defense Logistics Agency, Postal Service, Coast Guard and, yes, the Justice Department, Microsoft's
antitrust antagonist, have all started programs to use Microsoft software on tens of thousands of
desktop computers.
Part of the push toward Microsoft involves the company's office
productivity and communications programs like its Word for word
processing and its Excel spreadsheet, which in many federal offices
are replacing software from Wordperfect and Lotus. But the biggest
move involves sales of Microsoft's industrial-strength operating
system, Windows NT, which is becoming more and more popular in
corporate America.
"Microsoft and especially Windows NT are just taking over the
desktop in the federal government," said Robert Dornan, senior vice
president of Federal Sources Inc., a research firm in McLean, Va. "And I don't see anything on the
horizon that would undermine its success."
To be sure, the spectacle of Washington's beating Microsoft with one hand while buying from it with
the other is not as glaringly contradictory as it might seem. The antitrust confrontation with Microsoft,
the Justice Department insists, is not intended to hobble the company but to protect competition and
innovation in the software industry.
The focus of the investigation, as the department considers filing a major antitrust case against
Microsoft, is on accusations that the company is using its near-monopoly in the market for personal
computer operating-system software to gain an unfair advantage in the new markets of Internet
software, new media and online commerce.
But if Microsoft succeeds not through unfair advantages but by offering the best product for the best
price, then modern antitrust policy is working as it should. "That's right," a senior Justice Department
official said on condition that he not be identified by name, because "I certainly don't want to throw
them a bouquet."
Feeling embattled these days, Microsoft is uncharacteristically touchy about the success of its
government business. An executive in its Washington office observed, "Now remember, we lose sales,
too" -- not exactly the take-no-prisoners ethos long espoused by William H. Gates, Microsoft's
chairman, or Steven Ballmer, the executive vice president in charge of sales.
Microsoft started its government business in 1986 with a one-person office in Washington. Today, the
company has 120 people in its federal systems unit, about 20 more than a year ago. Given the Justice
Department's antitrust investigation, and all the resulting public attention, the Microsoft staff refers
jokingly to the Washington office as "ground zero."
Still, the Washington business is thriving. The company does not disclose its government sales. But
industry analysts estimate that in the current fiscal year, ending in June, its government sales will be
about $380 million, up nearly 40 percent from the previous year.
The far higher sales will probably come over the next several years as large installations of Microsoft
software gain momentum -- especially for Windows NT, which is typically used for big networks of
PC work stations.
The Social Security Administration, for example, began a program last year to install 70,000 Windows
NT work stations, running off 5,000 Windows NT network server computers, by 2003.
And the U.S. Postal Service is replacing its 80,000 point-of-sale terminals nationwide with Windows
NT work stations.
"These government customers are very big, so when they make a decision, the rollouts can be huge,"
said Pete Hayes, general manager of Microsoft's federal systems business.
To the government, the appeal of Microsoft products is the potential cost saving and the ease of using
its industry-standard programs. In many cases, Windows NT systems are replacing systems that use
the Unix operating system, initially developed for scientific and research purposes. With the steady
improvement in PC performance, personal computers can match the performance of Unix work
stations at perhaps half the price or less, by some estimates.
Once a technology laggard, the government "is leading the charge on NT in some ways, pushing it into
more advanced uses that you see in most corporations," said Mathew Mahoney, an analyst for IDC
Government, a research service in Falls Church, Va.
The Air Force is an example of that. In a pilot program, it is beginning to
experiment with moving some of its vital command-and-control operations
-- which range from mapping battlefields to spotting enemy fighter jets --
away from bigger, more costly computers onto personal computers running
Windows NT.
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