Microsoft Hopes for Coupling of Windows, Net

In its first major strategy shift in five years, Microsoft Corp. will unveil today a sweeping vision to merge its Windows operating system with the Internet, in hopes of setting technology standards that will lead software and Web-site development in the future.

Microsoft executives describe their Next Generation Windows Services as a centralized computing system that eventually could link personal computers to mobile phones and cars.

It’s a necessary and critical shift for Microsoft, because its dominance of the personal computer market is giving way to a constellation of new Internet-based devices, ranging from wireless phones to hand-held devices to Net appliances that are being used for such tasks as receiving e-mails and organizing schedules.

Rivals such as IBM Corp., Oracle Corp. and Sun Microsystems Inc. are already pushing similar Web services strategies. And America Online Inc. and computer maker Gateway Inc. plan to create Internet home appliances that use the rival Linux operating system.

Although it may be years before many of Microsoft’s NGWS products actually reach the market, Microsoft shares closed up sharply Wednesday. The stock jump was due to Tuesday’s decision by the federal judge presiding over Microsoft’s landmark antitrust case to delay imposing his restrictions on the company’s business until the end of the appeals process.

Microsoft stock surged $5.75 to $80.69 Wednesday on Nasdaq, and traded as high as $82.19. The stock is at its highest level since April 11, and has jumped 31% from its recent low of $61.44 reached on May 26.

“The judge’s decision is mostly behind this rally today,” said Brian Goodstadt, a financial analyst for S&P; Equity. He said that Microsoft’s new Internet strategy “won’t really lead to any new products immediately, but it’s an important day for the future of the company.”

Microsoft executives are betting that NGWS will be the framework for writing programs and developing software products for the Internet--a strategy similar to how its Windows operating system became the standard for personal computing that attracted developers to write software for it.

“Basically, this is the re-architecting of Microsoft,” said Rob Enderle, a Giga Information Group analyst.

Microsoft executives say NGWS is needed to expand the PC’s functions throughout the Internet, a process the company calls “any time, anywhere computing.”

For consumers, NGWS one day could automatically inform a user’s PC or hand-held device that a medical record has been updated, a flight has been canceled or a product has been purchased at an electronic auction.

“Microsoft will try to convince the world that it is not obsolete,” said Dwight Davis, a technology analyst for Summit Strategies. “But in some ways they already have crossed that line.”

U.S. District Judge Thomas Penfield Jackson has ordered Microsoft to be cleaved into two companies, one that would run the Windows operating system used in most personal computers, and another with all of its applications and Internet businesses. That break-up order is delayed until a higher court reviews the case.

Yet the federal antitrust case complicates Microsoft’s NGWS project because it may further bind the Windows operating system with Microsoft’s applications software.

But some analysts said that Microsoft could develop NGWS mainly through Microsoft’s applications division, rather than involving the whole company.

“It’s going to be difficult as long the [antitrust] cloud is hanging over them,” Enderle said. “Until we get clear of this case, this particular strategy is going to be risky.”

Microsoft Chairman Bill Gates is expected to outline a three- to five-year plan for NGWS--one that repackages many existing products with ones in development such as a new user interface and voice recognition technology.

One key to Microsoft’s new strategy is to use XML, a programming standard that lets different computers, Web sites and various types of computing devices communicate with each other. This would also help get Microsoft software into use on devices such as telephones and organizers, where it lags behind and faces strong competition.

The new initiative is the culmination of nearly two years of research and development.