More on MSFT compounding problems
April 9, 1999 from the NYT:
NEWS ANALYSIS
Behind Microsoft's Shift on Windows
A Fear That Consumers May Go Somewhere Else
Tomorrow
By JOHN MARKOFF
AN FRANCISCO -- Microsoft's decision not to blend its
consumer and business Windows operating systems into a single
product reflects profound changes in the consumer personal computer
marketplace that have surprised both the software giant and its partner,
Intel.
Almost overnight the PC market has moved
from a business defined by office products to
one that is increasingly delineated by both
consumer prices and features.
Microsoft's shift became apparent on
Wednesday at a Los Angeles hardware developers' conference, when
Steven A. Ballmer, Microsoft's president, announced that the company
was abandoning plans to tailor its long delayed Windows 2000 operating
system to desktop PC's as well as more powerful corporate machines.
Instead, it plans at least one more release of its aging Windows operating
system for desktop computers. A version, based on Windows 98 that is
scheduled to ship this fall, will fix software flaws and add some new
consumer-oriented features.
Then the company, based in Redmond, Wash., plans "sometime in 2000"
to release a new consumer version of Windows that will offer an
as-yet-unannounced set of easy-to-use consumer features, such as
"instant on."
Ballmer said the changes arose from listening to Microsoft's customers --
PC makers and software developers -- who contended that the
Windows 2000 combined product was not appropriate for consumer
markets increasingly focused on games and entertainment and not office
applications.
The shift, industry analysts said, may indicate that Microsoft has found
itself at a crossroads as significant as the one it faced in 1995 when it
abruptly shifted direction and embraced the growing Internet.
By redefining the computer marketplace and acknowledging the failure of
its strategy to use a single operating system for desktop machines,
Microsoft is leaving itself vulnerable to competition -- just as Intel is being
successfully attacked at the low end of the chip market by companies like
Advanced Micro Devices and Cyrix.
Moreover, consumer electronics companies like Sony are investing in
software and operating systems and refining consumer products like its
Playstation line so they will increasingly serve as Internet computers.
"This is an explosive problem," said Mark Anderson, president of
Technology Alliance Partners, a research and consulting firm based in
Friday Harbor, Wash. "The consumer market will be the largest market
in the world for operating systems," and Microsoft does not have a
product.
Ballmer's strategy shift included an acknowledgment that the company's
"Simple PC" initiative, intended to clean up the increasingly complex
design of the PC, had not gone far enough. That effort, in connection with
Intel has now been renamed "Easy PC," and Microsoft's president said
that it would remain a multiyear effort.
Moreover, Ballmer, by announcing Microsoft's intent to add the new
consumer operating system between its Windows 98 and Windows CE
product lines, is in effect admitting that the company's CE strategy has
been a disappointment.
In its recent corporate reorganization, the Windows CE consumer
product line was divided between set-top box and hand-held and
portable groups. The shift raised questions about the future of Windows
CE, which has so far had only lukewarm support among consumers.
At the same time, Anderson said, while Intel's failure to respond quickly
enough to the threat at the low end was a billion-dollar mistake,
Microsoft may not pay such a price if it responds promptly because there
are not yet viable competitors in the consumer space.
For example, the Linux operating system remains at least a year away
from being simple enough to install and having a meaningful number of
consumer applications. And the Be operating system, developed by Be
Inc., of Menlo Park, Calif., has yet to take off.
And although Apple Computer has gained some market share and been
revitalized since the return of its co-founder, Steven P. Jobs, it still
remains at a price disadvantage to PC's in consumer markets.
Still, the competitive situation at the low end of the PC market is likely to
become more volatile because the Windows 98 operating system is
increasingly the wrong product for consumers who are oriented toward
entertainment and away from Microsoft's Office productivity suite.
"This is just the tip of the iceberg," said Jeffrey Tarter, the editor of
Softletter, an industry newsletter based in Watertown, Mass. "The real
problem is the more you look at the innards of Windows the more
complicated and more flaky it gets. I don't see any way that they can fix
the mess they created without going back to the beginning."
That appears to be exactly what
Microsoft is doing in announcing a
new consumer operating system that
may appear in the year 2000 or
2001. Ballmer said the new operating
system would include advances in
digital media handling, home
networking, Internet technologies and
improvements in the ease of installation and use. That product outline has
evoked a skeptical response from competitors.
"At a risk of being called sexist, ageist and French," said Jean Louis
Gassee, chairman of Be, "if you put multimedia, a leather skirt and
lipstick on a grandmother and take her to a nightclub, she's still not going
to get lucky."
Even with its consumer plans in a state of flux, Microsoft also announced
plans for its corporate Windows 2000 operating system, raising new
concerns that by fragmenting its product line the company may
inadvertently sew confusion among customers.
"This raised a red flag for me," said Louis J. Mazzucchelli Jr., a financial
analyst at Gerard Klauer Mattison, a New York investment firm.
He said that the company now had as many as four or more versions of
its high-end Windows 2000 operating system (formerly Windows NT) in
the works.
"Remember when Apple had more than 17 different product lines?" he
said. "I have trouble understanding how Microsoft is going to keep
customers from becoming confused."
In addition to Windows Server Appliance, which Ballmer announced on
Wednesday, he said the company was working on Windows 2000,
Windows 2000 Professional, Windows 2000 Server, Windows 2000
Advanced Server and Windows 2000 Data Center.
Conceivably, this could leave the software developer at a disadvantage
against Linux and other versions of the Unix operating system, which
have been growing rapidly among both Internet server and software
developer markets.
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