If someone wants to read a detailed analysis of Microsoft, here it is:
I don't know if it biased in any way--seems somewhat balanced.
mercurycenter.com
Posted at 5:56 p.m. PST Saturday, March 27, 1999
What's Bugging Microsoft?
Product missteps, competitors and antitrust case are more pest than problem for software giant
BY MIGUEL HELFT
Mercury News Staff Writer
THERE'S a story making the rounds in the computer industry: Mighty Microsoft Corp. is no longer unstoppable.
In this tale -- repeated in media accounts, analysts' forecasts and statements by hopeful rivals -- it is not government antitrust lawyers who are the source of Microsoft's woes; it is Microsoft's own missteps.
Most notably, it is Microsoft's failure to get its most important new product in four years out the door that has helped strengthen some of its competitors. The product, an upgrade to its blockbuster Windows NT operating systems for business users, dubbed Windows 2000, is more than a year late and no firm release date has been set.
But if Microsoft's blunders are real, there are no signs that it has hit anything other than speed bumps. At the same time, Microsoft continues to forge ahead on the combined strength of Windows 98 and the existing version of Windows NT, and its path appears to remain clear of serious roadblocks.
''Even if they are off for another six months on Windows 2000, it should not have a dramatic impact on their fortunes,'' said Tim Bajarin, president of Creative Strategies, a technology consulting firm based in Campbell.
Still, Windows 2000 is essential to the long-term success of the Redmond, Wash., software maker. Unlike Windows 98, the software that controls the basic operations of most personal computers, the beefier Windows NT is aimed at more expensive server computers -- large machines that hum along in refrigerated closets and act as network hubs, doling out data to other machines or powering Web sites.
Windows 2000 has a clear goal: completing Microsoft's takeover of the highly profitable world of corporate computing, long a domain of companies such as IBM, Hewlett-Packard Co. and Sun Microsystems Inc.
In the absence of Windows 2000, Microsoft's traditional rivals have rallied, while new contenders, most notably the free Linux operating system, have burst onto the scene with surprising strength. The competition has managed to slow the dizzying growth of Windows NT. At the same time, Microsoft's forays into the world of hand-held computers with Windows CE, and into the Internet with its Microsoft Network, have faltered.
But the renewed competition has done little to weaken Microsoft's power so far. Although the rate of growth of Windows NT has slowed, customers continue to buy the existing version in record numbers. Meanwhile, the millions of customers Windows NT has amassed are not about to get rid of the operating system.
''You have major corporations that have built their entire back-end systems and their servers around NT, and they are not about to throw that away,'' Bajarin said.
While it works on Windows 2000, Microsoft is busy building an array of products to run with the new operating system to make it easy for businesses to do everything from managing computers on a network to building electronic commerce Web sites. Microsoft's goal is to build a software suite for server computers that mirrors the overwhelming success its Office suite of programs -- which includes Excel, PowerPoint and Word -- has had in the PC world.
Rick Sherlund, an influential analyst with Goldman Sachs who has tracked Microsoft since its 1986 public offering, said the rise of the Internet has opened up opportunities for alternatives to Windows. ''At the same time, Microsoft has produced much stronger growth than anyone imagined,'' Sherlund said.
Too early to say
While it is too early to predict that Windows 2000 will reignite Microsoft's blistering attack on its corporate rivals, it is also much too early to say it will not.
Indeed, there are plenty of signs that Microsoft continues to run like a well-oiled money-minting machine. Quarter after quarter, the company blows past the earnings estimates of even the most bullish Wall Street analysts. As sales increase, Microsoft's profit margins have grown even larger. In 1998, Microsoft made 31 cents for every dollar in sales. Those margins, the largest of any major company in the industry, have helped Microsoft amass an impressive pile of cash: in the last six months of 1998 alone, its reserves grew from $13 billion to $19 billion. And Microsoft's stock has doubled since the government filed its antitrust suit last May, giving the company a market value of $450 billion, the largest of any company in America.
Microsoft admits that getting Windows 2000 ready is the company's most important and challenging project. But Bob Herbold, Microsoft's chief operating officer, says the company will not ship the product until it performs well, and is bug-free.
''If we are consistent in our ability to understand what people want in a product like (Windows NT), then we will continue to gain share and the world will be rosy,'' Herbold said. ''And if in fact we can't win the product reviews and can't gain market share, shame on us.''
Since its 1996 launch, the current version of Windows NT has taken the world of corporate computing by storm. Sales soared 42 percent from 720,000 units in 1996 to 1.26 million units in 1997, according to International Data Corp. In 1998, sales rose again, albeit at a slower rate, to 1.57 million. They total an estimated $6.9 billion of the company's $14.5 billion in revenues.
The main reason behind the Windows NT slowdown is what makes competitors gleeful. Windows NT flooded the world of small and medium-size businesses. Even in the largest corporations, it has become the software of choice for running the operations of individual departments.
Falling short
But when it comes to the heavy lifting needed to handle the most powerful ''enterprise'' computing tasks -- things like billing software for telephone companies, reservations systems for airlines or customer service for large banks -- Windows NT has not measured up to the multitude of entrenched competitors. It is not fast enough, can't handle enough users, and crashes too often. That has helped makers of computers based on the Unix operating system, such as Sun, HP and IBM, remain strong. Even outdated mainframe computers have found renewed uses.
''The higher you climb into the enterprise, the steeper the grade is,'' said Jean Bozeman, an analyst with International Data Corp. ''It took 30 years to install all those operating systems out there and it is going to take another 30 years to replace them.''
And as Microsoft's pace has slowed, a number of competitors have found new strength:
Makers of Unix computers are boasting, as demand for their products increases. Last fall, Sun ran ads mocking Windows NT. ''Think of running your critical apps on NT? Isn't there enough world suffering?''
Software maker Novell Inc., which 18 months ago appeared headed toward extinction, has had double-digit growth for the first time in years. A key reason for its new-found success is that its NetWare 5 operating system is equipped with powerful ''directory'' technology that lets computers manage users and devices as they move along a network. Microsoft's much-hyped competitor, ''active directory,'' will not be ready until Windows 2000.
Meanwhile, Oracle Corp., Microsoft's rival in the database software market, teamed up with Sun to design a database appliance. The low-cost device is intended to run Oracle's database software without the need for an operating system, and it is aimed squarely at Windows NT. Major computer makers, including Microsoft allies Dell Computer Corp. and HP, have said they will build Oracle's database appliance.
Perhaps Microsoft's most unexpected rival is the free Linux operating system. It has been built by a loosely knit volunteer army working in disparate corners of the world and communicating with each other over the Internet. Enhancements to Linux are checked through a strict peer review system that by all accounts has been successful. Programmers say Linux is more stable than Windows NT, meaning it crashes less often. Its ability to run for long periods without rebooting has made it popular with Internet service providers who cannot afford to have their servers down. All the key computer makers and several large software companies have banded behind it, hoping to court the growing community of Linux fans.
Meanwhile, the reason for the Windows 2000 delay is simple. Microsoft is seeking to remedy most, if not all, of Windows NT's shortcomings. That means making sure the software is as reliable as various Unix flavors and that it can support ''clusters'' of computers linked together for more power. Microsoft also intends to pack it with features and tools to do everything from building Web sites to supporting electronic commerce transactions.
The result is what is perhaps the largest software project ever undertaken. Windows 2000 has 35 million lines of computer code, the basic instructions written by programmers, or more than three times the size of Sun's highly regarded Solaris, a version of Unix. Getting all the pieces to work in conjunction, without bugs is a gargantuan task that has cost Microsoft billions of dollars in research and development. Its detractors doubt that Microsoft, a company that has a notorious reputation -- deserved or not -- for selling buggy products can pull it off.
Getting the bugs
But Microsoft says it sees light at the end of the tunnel. It plans to ship the final test version of Windows 2000, dubbed Beta 3, before the end of April. The company says it has signed up 500,000 beta testers -- customers who put the software through the ringer to squeeze out all the bugs. That's more testers than some Unix vendors have customers. The testers run the gamut from PC makers to small and large independent software developers to corporate customers, many of whom are running pilot programs to put Windows 2000 into production systems. Microsoft says it will not set a firm date for Windows 2000 until it evaluates the feedback from its beta customers, but says it is on track for shipping the product in the second half of the year.
The power to marshal such a critical mass of customers is unique to Microsoft, and it is a major reason for its success.
When Microsoft Chairman Bill Gates came to San Francisco last month to unveil a string of products for electronic commerce, some of the world's most powerful business software leaders were on hand to show their support.
''Microsoft is one of the few partners we have with whom we can really work together,'' said Hasso Plattner, chief executive of Germany's SAP AG, the world's third-largest software maker.
Meanwhile, Windows NT continues to land on corporate desktops, replacing the Windows 98 machines of many office workers. More than 3 million copies of Windows NT for desktop computers were sold in the last quarter alone.
Microsoft is also making inroads in the world of e-commerce, where it is considered a laggard behind players like IBM, Oracle, AOL and Sun whose software powers many of the world's most active Web sites. Microsoft's ability to package all the pieces necessary to build an e-commerce Web site -- including Windows NT, the SQL Server database, the Exchange e-mail package, and electronic transaction and Web-building tools -- is a powerful incentive. It saves customers from the sometimes difficult task of patching together software from different vendors.
Adding servers
That has allowed Autobytel.com, an Internet auto superstore based in Irvine, to quickly add servers to handle a sudden surge in traffic following its Super Bowl ads. '''With Unix you can do that, but it is a bit more complicated process,'' said Doug Nottage, Autobytel's director of advanced development.
Testimonials like those are critical for Microsoft as electronic commerce grows and a reputation for being able to handle a large volume of customers is essential.
At the same time, some potential threats to Microsoft could be overblown, some analysts say. Linux, for instance, could turn out to challenge the makers of Unix operating systems, thereby boosting the relative strength of Microsoft. Oracle's database appliance is a defensive move aimed at replacing sales of Oracle's databases on Windows NT, which to Oracle's chagrin is its fastest growing database platform.
Even Sun, perhaps Microsoft's most vociferous foe, admits the company is likely to remain a powerhouse as electronic commerce expands. Just weeks ago, Sun unveiled a key component of its electronic commerce strategy, the NetDynamics 5.0 application server. About half of NetDynamics sales are for Windows NT.
In the end, analysts believe the world of corporate computing will not have a single dominant player with the power Microsoft wields over the PC industry. The requirements of large corporations and Internet sites are varied enough to make room for a number of competitors.
Dell, perhaps the most successful PC and server maker in recent years, understands that well. The company has long been tightly aligned with Microsoft. But in recent months, Dell has said it would ship Linux machines and Oracle's database appliance, although CEO Michael Dell warns not to read to much into those decisions.
''Our strategy has been broadened,'' Dell admits. But he quickly adds: ''I don't think you get 100 percent of anything. We sell what our customers want to buy. We go right for the bull's eye . . . where there are the most customers. The vast majority of our operating system focus is NT.''
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