PC Industry Likes Everything About Windows 95 Except the Competition : Retailing: Other companies are making products for Windows 95, but Microsoft retains a significant lead.

For the personal computer industry, long immersed in a volatile love-hate relationship with software giant Microsoft Corp., this week’s launch of Windows 95 evokes conflicting feelings.

On the one hand, Windows 95--which appears certain to follow predecessors DOS and Windows 3 in establishing itself as a standard for personal computer operating systems--represents an enormous business opportunity for a wide range of companies.

Personal computer manufacturers will be able to sell more machines--both because Windows 95 will make PCs easier to use and thus accessible to new groups of consumers, and because many current PC users will need new equipment to run the new software. Vendors of memory chips, CD-ROM drives and printers will also gain from this general upscaling of PC gear. Applications software makers will be able to sell new versions of all their old programs, customized for Windows 95.

But on the other hand, the biggest beneficiary by far of the new software will be Microsoft, and the company’s firm grip on the PC industry threatens to become a stranglehold. An avalanche of new Microsoft applications--from spreadsheets to word processors to multimedia encyclopedias--will be ready when Windows 95 is released this week. Microsoft’s competitors in these areas, less familiar with Windows 95, are mostly still struggling to finish their products.

Already, Microsoft operating systems control the workings of about 100 million PCs, or 80% of all machines--and analysts are predicting that anywhere from 14 million to 30 million copies of Windows 95 will be sold by year-end. By the fall, getting any operating system other than Windows 95 on a new PC will require a special order.

“Regardless of its merits, we’ll all be using Windows 95,” says David Coursey, editor of PC Letter, an influential industry newsletter. “It is a good thing for people who have never used a computer, but for people who have been using a computer, learning a new operating system can be painful.”

For Microsoft, the launch of Windows 95 is something of a rite of passage, proof that it is the undisputed driving force in the $85-billion-a-year personal computer industry. And it further vindicates the company’s 1991 decision to sever its ties with IBM--with which it had been developing a next-generation PC operating system called OS/2--and commit itself fully to Windows.

Microsoft has already obliterated most of its competition in the mainstream personal computer software industry. Companies such as Word Perfect and Lotus Development, caught off-guard by the success of Windows, began falling behind Microsoft in the early 1990s. Then Microsoft upped the ante, launching new database programs and a low-priced combination of products called Microsoft Office.

Competitors howled, contending that Microsoft was using its control of DOS and Windows to gain an unfair advantage in application software. The U.S. government investigated the allegations but ultimately agreed to a slap-on-the-wrist settlement, and the competitors were pushed to the wall. WordPerfect was purchased by networking software maker Novell Inc., Borland has sold off major products and teetered on the edge of insolvency and Lotus was finally acquired by IBM.

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This time around, no one will make the mistake of underestimating Microsoft.

“The trick of this is to get out of Microsoft’s way,” says Coursey. “In martial arts, the most important defense is not to be there when the blow comes. It’s now the same in software.”

With Windows 95, therefore, the competitive climate will continue to be harsh for companies making spreadsheets, word processors and databases. And times will also be tough for companies who make software that is being incorporated into Windows 95: The new operating system will include features like faxing, messaging and networking, which once required separate programs from companies such as Lotus, Delrina and Novell. Traveling Software makes software allowing PC users to transfer files from their portable to their office computers, a feature available in Windows 95.

“Whenever Microsoft sees a good feature in a competitor’s product, they say we’ll have it in a future version of ours, so wait for it,” said Sheldon Laube, chief technology officer for Novell. And it usually makes good on those promises.

Still, many software vendors say they expect to hold their own just fine--even in areas where they would appear highly vulnerable. Gordon Eubanks, chief executive of Symantec--which makes Norton Utilities and other products that compensate for the deficiencies of operating systems--says his company “has plenty of room to add value. They bundle utilities and we still do great.”

Software companies which have built up strong niches, such as children’s software specialist Broderbund, will likely benefit from the expansion of the market brought about by Windows 95--even though they will also face heightened competition from Microsoft.

Says Jay Samit, president of CD-ROM developer Jasmine Multimedia: “Windows 95 gives the new consumer a standard so that he can feel confident in buying new technology. That will be good for all of us.”

But at the same time, he’s worried that Microsoft will now hog an even bigger portion of customers’ attention than it already enjoys. “Shelf space at the computer retailers is already very tight,” Samit says. “Whatever shelf space that Microsoft commanded before Windows 95, they’ve just doubled.”

Hardware vendors of all stripes clearly stand to be big winners. PC companies should see a huge holiday season as Microsoft’s immense advertising campaign draws in first-time buyers. About 5.6 million PCs were sold in the fourth quarter of last year, according to Dataquest Inc. of San Jose, Calif. It expects that figure to increase by at least 20%.

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“Windows 95 will be the biggest product for the PC industry in at least the last five years,” said Bob Stearns, a vice president at Compaq Computer. Intel Corp. will see robust demand for its Pentium chips, as power-hungry Windows 95 accelerates the transition to higher-speed microprocessors.

Memory chip makers such as Micron and Motorola and disk drive suppliers such as Quantum Corp. and Seagate Technology are also looking forward to a rich harvest: most PCs today are sold with 8 megabytes of memory and 300- to 500-megabyte hard drives--double or triple the size of a year ago.

“Windows 95 will bring new people into the market for us,” says Arnold Walston, marketing director for Creative Labs, a supplier of multimedia technology.

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Among the big losers will likely be Microsoft’s historic rivals, Apple Computer and IBM. Apple stands to lose most of the ease-of-use advantage that it has long enjoyed, thus threatening the Macintosh with a further loss of market share.

Apple Chief Executive Michael Spindler has tried to sound a hopeful note. “We will counter this by saying, ‘This is what the Mac does and does better,’ ” Spindler said recently. Windows 95 will get a lot of people looking at buying PCs for the first time, and we will get some of those sales.”

For its part, IBM continues to insist that it has no plans to abandon OS/2 in favor of Windows 95, and OS/2 will not be altered to be compatible with Windows 95. IBM will sell computers with Windows 95 pre-installed, but extended bickering over licensing agreements means IBM products that use the software will be released later than those from other vendors.

Is there a possibility that Windows 95 will be a flop? Not likely. Microsoft has left little to chance: An estimated 400,000 PC users have been putting the software through its paces for the last 18 months. These users--most of them serious computer jocks--have been submitting regular reports to Microsoft, pointing out potential trouble spots.

Earlier this year, Microsoft Chairman Bill Gates decided to delay the software’s release for another three months until more fixes could be made. Some problems remain, but few believe they will be substantial enough to discourage customers. And many of those who decide that Windows 95 isn’t good enough will probably choose not a Microsoft rival, but a different and even more powerful Microsoft operating system, Windows NT.

Even rivals are giving Windows 95 grudging praise.

“Windows 95 is a very good piece of work,” says Novell’s Laube. “I compliment Bill on the effort.”