Microsoft Juggernaut Keeps on Rolling : Technology: Chairman Bill Gates says a federal investigation into alleged monopolistic practices doesn’t worry him.
Like a mushroom colony nurtured by the Northwest’s moist weather, Microsoft Corp. just keeps growing and growing and growing.
Profit and sales have soared sixfold the past five years. Its payroll, now topping 10,000, has been rising by 60 people a week. Buildings have sprung up so fast at its headquarters “campus” outside Seattle that even veteran employees get lost.
And Microsoft’s domination of the personal computer software industry is so great that its products are found on about 90% of the world’s PCs.
“It’s the Standard Oil of our era,” said Richard Shaffer, editor of the industry publication ComputerLetter.
But like that oil giant of the early part of the century, Microsoft’s path may not be entirely paved with gold.
For one, the Federal Trade Commission is examining whether the company monopolizes the software industry. A government investigation led to Standard Oil’s breakup in 1911.
Microsoft also is battling a costly copyright infringement suit by Apple Computer Inc., though Apple was dealt a significant setback in the case recently.
Finally, erstwhile collaborator International Business Machines Corp. is dueling with Microsoft over the direction of personal computer software.
IBM is promoting a competitor to Windows, Microsoft’s wildly successful product that makes IBM-type personal computers easier to use. And a historic IBM alliance with Apple was seen by many as an attack by the two largest personal computer makers on Microsoft’s dominance of PC software.
But Bill Gates, Microsoft’s co-founder, chairman and 36-year-old boy wonder, doesn’t appear nervous.
In a recent interview, Gates expressed confidence that Microsoft would prevail in the Apple lawsuit and persuade the government that it is not monopolistic.
“They aren’t certainly that high on my list of concerns,” he said of the twin cases.
He also said Microsoft had little to fear in its competition with IBM, though he did not entirely dismiss the Apple-IBM alliance, aimed at creating a new PC software standard.
“The way I approach my job is to assume my competitors will do a very good job,” he said. Microsoft’s rivalry with much larger IBM is a piece of computer industry irony. Microsoft’s stupendous growth and dominance of the PC software market is largely a result of a decision IBM made 11 years ago.
IBM chose Microsoft’s DOS software as one of three operating systems for the computer giant’s first PC, introduced in 1980. An operating system is the base layer of software that controls a computer’s internal functions, like storing files. It works with application programs, which provide specific functions like word processing.
IBM promoted DOS more heavily than the other operating systems, and DOS went on to dominate the operating system market for both IBM PCs and “clones” of the IBM originals.
“It’s not sufficient to be smart and a good software developer. You also have to have the right breaks. This was Microsoft’s big break,” said Rick Sherlund, a software analyst at Goldman, Sachs & Co.
IBM and Microsoft collaborated for years. They even worked together on an operating system to replace DOS, which failed to keep up with the tremendous surge in the power of PC hardware.
But IBM and Microsoft had a falling out over that new operating system, called OS-2. The original versions of OS-2 did not live up to billing and sold poorly, while Microsoft’s Windows program took off after the company released an improved version in May, 1990.
Seeing the astounding success of Windows--about 10 million copies of that improved version have been sold--Microsoft chose to stick with Windows as its future technology base rather than go with OS-2.
IBM stuck with OS-2. For Microsoft, the split proved profitable. Not only does it own the rights to the hottest-selling PC operating system, but it dominates the market for Windows applications programs as well.
IBM also figured prominently in the FTC’s investigation of Microsoft, which stemmed from a joint press release the two companies issued in 1989. The two, then still collaborators, described how Windows and OS-2 would be positioned in the marketplace: Windows for low-end computers and OS-2 for more advanced uses.
The FTC is investigating whether that statement represented an arbitrary division of the market by two major companies, something considered to violate laws on competition.
Though the FTC has since broadened its investigation into allegations that Microsoft monopolizes the industry, its original reason for the probe seems absurd today, given that the two are now such cutthroat competitors.
“That’s kind of laughable in that IBM is trying to put a bullet in the head of Microsoft, and Microsoft is doing everything to enhance Windows,” Sherlund said.
Then there’s the Apple suit, in which the PC maker alleges that features in Windows mimic those found in the screen display of Apple’s Macintosh. Should Microsoft lose, it could be forced to pay Apple vast sums of money and to modify the way Windows works.
