Windows NT Seen as Key to Rapid Growth at Microsoft
Microsoft is at it again. Just a year after its much-hyped release of Windows 95, the company is pushing out a range of new software, hardware and content initiatives designed to keep it growing at a rapid pace to the end of the century.
“The breadth of activity is unparalleled,” booms Microsoft Executive Vice President Steven Ballmer.
Although Microsoft expects to sell 40 million copies of Windows 95 by the end of this month, helping to boost the company’s profit by 46% in the year to June, the company is coming up against saturation in its desktop markets.
A key driver of growth will be Windows NT, for which Microsoft released a significant upgrade Wednesday. Not only will the new NT software bring in an estimated $2 billion in revenue over the next year, but because it sports the same look as Windows 95, Microsoft executives also hope it will spur a wholesale upgrade from older Windows 3.1 software. Such a massive upgrade could, in turn, spur sales of new upgrades of applications software, a $4-billion business that remains the core of Microsoft’s profit.
The upgrades are designed to work best on the new 32-bit operating systems like Windows 95 and Windows NT. Yet most corporate users still have the company’s old Windows 3.1 on their desks. Unless more switch, says Dataquest analyst Chris LeTocq, Microsoft could begin to see its revenue from applications, the biggest chunk of its earnings, start to decline.
“The company is seeing saturation in its core markets,” LeTocq said.
Since NT pushes Microsoft into the pricier, high-profit corporate software market, it has potential to bring in bigger profit.
Ballmer predicts NT could outsell Windows 95 within the next two years, though that forecast is far more aggressive than that offered by his subordinates marketing the system.
But longer-term, Microsoft sees a need to diversify into a range of new areas to maintain its high growth rates. That explains the $2 billion Microsoft spent on research and development last year (making it sixth in the nation in research spending) and its plans to continue at a rapid pace.
Much of that research money is going into making Microsoft a major provider of content on the Internet. As the latest effort in that push, the company announced plans to offer Expedia, an online travel service.
In recent weeks, the company has launched MSNBC, a joint venture with NBC; the online magazine Slate, edited by Michael Kinsley; and a corporate travel service venture with American Express.
Microsoft declined to give details about other products on the drawing board, including Cityscape, a network of local community services; Mungo Park, an adventure travel magazine; and a personal investment magazine.
Ballmer said those products are expensive and won’t bring in immediate revenue but are important because, unlike software packages, they promise a steady stream of revenue in the long term.
Analysts are openly skeptical. “I’m not sure how well they will manage content,” says one analyst. “At heart they are all technology geeks.”
Indeed, Microsoft’s poor performance in a weak multimedia market has resulted in the company refocusing on fewer titles aimed at becoming one of the top 100 bestsellers. Currently 15 of its 65 or so titles fit in that category.
Hardware is also emerging as a major area of emphasis. Less than a year after offering a joystick for game players, the company has captured half that market.
Microsoft is hoping to use the Internet to spur growth in all its major product categories. Internet features are a key attraction of Windows NT. Microsoft’s new version of Encarta will contain 4,500 links to Web sites. And its new version of Office will be tightly integrated with the Web, allowing customers to use the word-processing program for e-mail.
Microsoft’s new initiatives are costly and risky, but Microsoft Chairman Bill Gates appears confident the company will be able to find new sources of growth.
“We are willing to take substantial risks,” said Gates, who answered questions aboard the aircraft carrier Constellation surrounded by fighter aircraft, after 300 analysts and reporters were evacuated from the downtown Bell Harbor International Conference Center because of a bomb scare. The carrier was in Seattle for a fair this weekend.
