The Blockbuster That Wasn’t Marks Its First Anniversary

Enough already.

Last year Microsoft turned release of its Windows 95 software into a worldwide circus, complete with skits hosted by Jay Leno and dancers on barges.

Now, for the product’s first anniversary, Microsoft is spinning more hoopla and hype.

Starting today, the eve of the anniversary, the Redmond, Wash.-based software giant is hosting a weeklong “virtual birthday party” on its Internet World Wide Web site that will include online interviews with Microsoft Chairman Bill Gates, a trivia contest with computer prizes and free screen savers for all.

Gates calls the party a gesture of goodwill. “Windows 95 has helped millions of users get more out of personal computing, and we owe a big thank you to the entire PC community,” he said in a statement.

But the celebration masks a more somber reality: Computer users are taking far longer than expected to switch to Windows 95, creating problems for companies--including Microsoft itself--whose new software applications work exclusively on the new operating system.

Although the software has been a great success by most standards, selling 40 million copies over the last year, it hasn’t been the blockbuster the industry expected. Tens of thousands of the Windows 95 boxes that crammed store shelves last fall had to be returned to Microsoft unsold.

The market research firm Dataquest Inc. of San Jose, which originally projected sales of 30 million copies of Windows 95 by the end of last year based on surveys of corporate information systems managers, has repeatedly cut its forecasts. Most recently, it predicted that only 47 million copies of Windows 95 would be sold by the end of this year, 27% fewer than it predicted earlier.

The main problem may be coming competition from another Microsoft product, Windows NT, a more sophisticated operating system that is incompatible with past Windows software.

“Microsoft has been saying Windows NT is the future, Windows 95 is a steppingstone,” says Chris Le Tocq, an analyst at Dataquest. “Nobody wants to go through a jarring transition [to Windows 95] only to have to do it all over again,” says Le Tocq.

And since Windows NT does not work with much of the hardware or run much of the software now on the market, many companies are choosing to wait until improved versions of NT are released. That may explain why Windows 3.1, the older system, remains a bestseller, much to Microsoft’s dismay. Twenty million copies of 3.1 will probably be shipped this year, according to Dataquest, double its earlier forecasts.

Microsoft Executive Vice President Steve Ballmer, the company’s master marketer, insists the company has hit its sales targets for Windows 95. The excess inventory returned last fall, Ballmer says, was part of a strategy to make sure no retailer fell short of stock.

“That was a mistake. It was a problem of inventory management,” he said.

So why all the hype last year? It wasn’t just Microsoft stoking the fires, says Ballmer (although he says public relations professionals still call to ask him the secret of his success). “The industry wanted a big deal to happen. Intel and the resellers wanted to reinvigorate the business.”

Why does it matter? Whether it’s one Windows or the other, Microsoft gets the money anyway. “We needed to get the industry to switch to 32-bit,” Ballmer says, referring to the latest generation of operating systems, which allow computers to undertake multiple tasks at once.

Microsoft earns the bulk of its profits from the sale of applications programs such as games, word processors and spreadsheets. And since new applications designed for the 32-bit Windows 95 and Windows NT systems generally won’t run on the 16-bit Windows 3.1 system, a slow transition means lower profits.

The slow transition is also causing problems for companies such as Cupertino, Calif.-based Symantec, which invested heavily to develop and market software designed to improve the performance of Windows 95.

The transition period raises another worry for Microsoft. While waiting, corporate managers may begin eyeing alternatives to Microsoft-based computer systems, such as networked terminals running applications marketed by Microsoft competitors.

Says Le Tocq: “The costs associated with the 32-bit transition is making people ask whether they really need all the expensive hardware and applications on their desktops.”

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