Cocky Microsoft Set to Challenge Software Rivals on Their Own Turf
Earlier this year, Microsoft--long the most profitable publisher of personal computer programs--edged past Lotus Development to become the world’s largest independent seller of PC software.
To hear some folks on Microsoft’s idyllic 29-acre headquarters campus here, it was simply a case of Manifest Destiny.
Lotus, they sneer, is populated by a bunch of Gucci-shoed marketing types who couldn’t duplicate the success of their best-selling IBM financial spreadsheet program, 1-2-3, on the Apple Macintosh.
Ashton-Tate--the smallest of the Big Three publishers of PC software and the leader in database programs--has been plagued with management instability and is woefully behind technologically, they add.
As for IBM--which has enriched Microsoft by granting it a monopoly on key operating system software but poses the biggest long-term competitive threat to anyone in the computer industry--well, “IBM is basically composed of middle-aged to older people,” says Microsoft product manager Mark G. Mackaman.
This is no compliment coming from Microsoft, where the average age is 28 and where the chairman--hacker, Harvard drop-out and PC pioneer William H. (Bill) Gates III--became a billionaire this year at age 31.
Cocky? Without a doubt. And while the Microsoft staffers overstate their competitors’ weaknesses and neglect to mention some strengths, Microsoft’s swagger is understandable.
In an industry where others consider themselves lucky to have a best-seller in any single product category, Microsoft is a leader in three: operating systems, computer languages and applications software, where Microsoft publishes the three top-selling Macintosh business programs. Microsoft’s Flight Simulator is also the leading entertainment program for both IBM and compatible machines and Macintoshes.
Now Microsoft is preparing to unveil new programs in the only major product area where it has failed to produce a major hit: the market for IBM-compatible business applications such as financial analysis, database management and word processing.
At the same time, the company is working feverishly to deliver a successor to its MS-DOS operating system--known as Operating System/2--and is a pioneer in a revolutionary new technology using compact laser discs that contain vast stores of data.
At the end of this month, the company will release Microsoft Bookshelf, a single compact disc that contains electronic versions of 10 reference books for writers. At the touch of a few keys, a writer will have access to such works as Roget’s Thesaurus, Bartlett’s Familiar Quotations, the Chicago Manual of Style and the American Heritage Dictionary.
With Bookshelf, for example, a speech writer could find a relevant quote from Bartlett’s in seconds and drop it into a speech or other document with the click of a button.
“Our plate is full,” says President and Chief Operating Officer Jon A. Shirley, at 48 one of the oldest employees at Microsoft, turning aside suggestions that Microsoft should grow by aggressively making acquisitions.
Greater Capabilities
Perhaps too full, say Microsoft’s critics, who contend that the early version of new OS/2 operating system that was shipped to software developers in early May takes up too much computer memory, runs too slowly and is full of bugs. (The early release enables software developers to begin writing applications for the new operating system.)
As a result, many in the industry predict that Microsoft will be late in delivering the Presentation Manager version of OS/2, which fully exploits computer capabilities by providing users with multiple “windows” running different applications on the computer’s screen.
The new operating system, which controls the basic functions of the computer, will allow programmers to write applications with dramatically enhanced capabilities.
Microsoft, which hasn’t yet announced a release date for Presentation Manager, considers the gripes unwarranted. “For many companies--especially companies that want to milk old products and cut back on research and development--the status quo provides certain advantages,” says Mackaman, the product manager for OS/2.
But for companies that are hungry, the transition to OS/2 provides a window of opportunity to write better software and perhaps dislodge the current applications leaders. “It is a window that we, in particular, want to take advantage of,” says Shirley, whose understated manner is a perfect foil for the flamboyant Gates.
Applications programs are what allow computers to perform useful tasks. The most popular applications include word processing programs, electronic filing programs known as database managers and spreadsheet programs.
Spreadsheet programs, which generate long columns of numbers that can be recalculated quickly, are popular among businesses for budgeting and other financial calculations involving many variables.
Offers Powerful Lure
Many believe that Microsoft is unusually well situated to take advantage of the arrival of OS/2. The company’s virtual monopoly on IBM and compatible operating system software provides a steady stream of profits to plow back into applications development. In fiscal 1987, which ended June 30, net income climbed 83% to $71.9 million on revenue of $345.9 million, and the pretax profit margin was an astounding 35%.
Moreover, Microsoft’s corporate culture is a powerful lure for talented software writers. Programmers, who make up a quarter of the company’s nearly 1,700 employees, set their own hours. Some, amateur jugglers, spend their lunch breaks juggling by “Lake Bill” on the tree-covered, low-rise campus.
“We’ve always had the right balance between planning and informality, and chaos,” says Carl Stork, a marketing manager who joined the company in 1981.
Unlike at Ashton-Tate, which one analyst derides as “one giant committee,” meetings are kept to a minimum. At Gates’ direction, all Microsoft professionals have their own offices. And a generous stock option program has made millionaires of many and offers the prospect of riches to others.
Then there is the chance to work with Gates, the legendary magazine cover boy whose vision of a computer on every desktop and in every home continues drive the company.
Gates declined to be interviewed for this article. Associates say he is tired of stories that portray Microsoft as a one-man show, and is embarrassed by references to his wealth. Microsoft’s stock has quintupled since the company offered it to the public at $21 a share in March, 1986.
Gates’ slight build and boyish looks belie his competitiveness. He has made no secret of his determination to unseat Lotus as the No. 1 seller of applications software.
“He is trying to build the IBM of software, and is determined to be No. 1 in everything Microsoft is involved in,” says David Bunnell, chairman of PCW Communications and an old acquaintance of Gates. “I mean everything. “
Lotus, to be sure, is a formidable competitor, made stronger by its recent alliance with IBM under which the two will jointly develop and market a mainframe computer version of 1-2-3 and other programs. Many believe IBM made its deal with Lotus to keep Microsoft from feeling too comfortable about its status as IBM’s partner in operating systems.
Despite Lotus 1-2-3’s overwhelming acceptance as the industry standard, sources say Microsoft is taking direct aim at Lotus and is readying an IBM PC version of Microsoft’s acclaimed Macintosh Excel spreadsheet program. “In terms of features and ease of use, Microsoft Excel makes 1-2-3 look rather pale,” says the Seybold Outlook on Professional Computing, a newsletter, in a typical review.
Microsoft is also known to be working on database software that will go up against Ashton-Tate’s popular dBASE line and an integrated program for beginners on IBM and compatible computers. And it is enhancing its Microsoft Word, the top-selling Macintosh word processor and No. 3 in the IBM-compatible world, to perform simple desktop publishing tasks.
In the IBM-compatible arena, “We’re not threatening the competition today,” concedes applications marketing manager Pete Higgins. “But ask me again in a few months.”
Lotus, he adds, has a 90% share of the corporate spreadsheet market and, standards notwithstanding, “people don’t retain that high a market share in any industry for long.”
Analysts agree. “As the leading developer of Macintosh applications, Microsoft has a leg up in developing IBM applications for OS/2,” says William J. Higgs, director of software research for InfoCorp, a Silicon Valley market research concern. “The PC world is moving towards graphics, the area in which Microsoft shines as evidenced by its success with the Mac.”
Indeed, Gates has long been an evangelist for the point and click simplicity of the Apple Macintosh--in fact, he has angered some at Apple by borrowing many of the the Mac’s features for OS/2.
(In Microsoft’s view, Apple should be more grateful. The Mac was “dead in the water” until Microsoft released Excel, marketing manager Mike Slade contends, ignoring the importance of desktop publishing in the rise of the Macintosh. Microsoft staffers also claim a lot of the credit for the success of IBM’s original PC, noting that Gates persuaded the computer giant to use a more powerful microprocessor than originally planned.)
Gates’ dream, which he has pursued since 1975 when he dropped out of Harvard and moved to New Mexico to adapt the BASIC language to the MITS Altair computer, is for PCs to serve as easy-to-use “information appliances” in schools, offices and homes. Later he moved the company to the Seattle area, where he grew up and where his father is a prominent lawyer and his mother a member of several corporate boards.
“The promise of the PC goes far beyond mundane business applications like spreadsheets,” Gates said in a brief interview at a trade show in June.
That is is why Microsoft has thrown its weight behind development of compact disc technologies known as CD-ROM and CD/I. The technology uses silvery discs resembling audio CDs that can store 550 megabytes--or 275,000 pages--of information, pictures as well as text.
“We believe CD-ROM will take personal computers to a whole new class of users,” says marketing manager Stork.
New Marketing Ploy
To be sure, “there is a trail of dead prognosticators” who have incorrectly heralded the era of CD-ROM, says Gary Kildall, president of KnowledgeSet Corp, a Monterey firm developing CD-ROM applications. The biggest problem is that few PC owners are inclined to invest several hundred dollars in a specialized CD player until there’s a large catalogue of software.
But Microsoft believes it has solved this “chicken and egg” problem by packaging Bookshelf with an Amdek CD player and offering the package for $1,095. (The disc alone has a suggested retail price of $295.)
Bookshelf is among the first CD-ROM packages aimed at a wide base of users. Other companies, including Lotus, already publish CDs containing specialized financial data for narrower markets.
Microsoft also hopes to eventually offer a “multimedia encyclopedia” on a CD, incorporating text, sound, video and graphics. An entry on John F. Kennedy, for example, might include biographical data plus a film clip from his inaugural address.
“This company was founded on the vision of a computer on every desktop and in every home,” Stork says. “We’re getting there on the every desk part. These discs will be key in getting them into the home.”
