IT STRATEGY - Has the world finally found the chink in Microsoft's corporate armour?

It appears that the world has finally lost its patience with Microsoft. The US, Japanese, EU and South Korean governments are all investigating various practices of Bill Gate’s empire. Many users around the globe are fed up, too. Is 1998 set to be Gate’s annus horribilis? The US Department of Justice is conducting an antitrust investigation prompted primarily by Microsoft’s insistence that PC manufacturers include a copy of its Internet Explorer (IE) browser with the Windows operating system on their hardware. In a contempt of court hearing on 13 January, federal Judge Thomas Penfield Jackson lost his patience with Microsoft lawyer Richard Urowsky’s arguments, saying, “I think you have tested the limits.” The following day Japan’s Fair Trade Commission raided Microsoft’s offices in Tokyo, taking copies of documents relating to PC makers. The Japanese anti-monopoly authority is looking into the company’s decision to bundle Word with its Excel spreadsheet. The EU is investigating Microsoft’s contracts with Internet service providers and the distribution of IE, while South Korea, in addition to its economic woes, wants information on the planned integration of Windows and IE. This chain of events must be humiliating for the software giant whose Windows operating system runs on more than 90% of the world’s PCs. More importantly, this is likely to have serious repercussions for company IT purchasing and standards policies. It used to be that nobody ever got fired for buying IBM. In the 1990s, the rule changed to “no one ever gets fired for buying Microsoft”. Now, with the antitrust investigations into the company and the maturing of alternative desktop devices, it’s time to reassess whether this is still a viable position. The extent to which IT decision-makers are fed up with a total reliance on Microsoft products is clear. Take the Network Computer (NC) debate which surfaced last year, for example. The NC offers an alternative to the PC model. It’s a bonus which appeals to many IT purchasers. In fact, research commissioned by Compaq and published in January found that 34% of UK IT directors and managers surveyed would consider the NC as an alternative desktop device simply to reduce the stranglehold Microsoft has on the marketplace – although we have yet to see if they will put their money where their mouth is. Referring to the report, one Compaq product manager made the throw-away comment: “It’s a shame that purchasing decisions are being made on such an emotional basis. It’s not good business.” On the contrary, it’s very good business. Most, if not all, capitalists know instinctively that if you put all your mission-critical eggs in one supplier’s basket, you are putting yourself at the mercy of that supplier. So, why so much “emotion”? The answer lies in Microsoft’s corporate history, reputation and current practices. Look at the wider picture and it’s no wonder users are concerned. Two years ago IBM, Intel and Microsoft all had roughly the same stockmarket value – approx $50bn – now Microsoft is omnipresent and worth roughly $158bn. Add to that the fact that the company controls the desktop operating system and office application markets and is rapidly dominating the Internet browser and network server markets. The principle behind standardisation, as provided by the Windows operating system, is to increase competition and user choice. Yet ironically in the case of Microsoft, it has had completely the opposite effect. Yes, Windows has improved hardware competition, but in desktop office software – the user interface – competition is a closed door. In other areas, the door is rapidly closing. Netscape, Microsoft’s only Internet browser competitor, has a large installed base, but its current financial worries mean that it is less attractive to new potential users. That Microsoft is a virtual monopoly is only part of the problem. Among its users, the company has a reputation for producing software that is full of bugs, lacks innovation, is dogged by late releases, has poor support and is dependent on ever more expensive and memory-hungry upgrades. In the absence of competition Microsoft has been under no pressure to shape up. True, it has forced software prices down with its low-cost, high-volume package approach. Yet all the signs are that its model of producing one product for the masses has gone too far. This is exacerbated by the company’s annual upgrade releases. Users fear there will come a point at which ubiquity triumphs over quality. In many cases, users would say it already has. Microsoft looks set to continue its domination of all the specialist technology fields it chooses to expand into. And expansion is exactly what’s on the board. Microsoft recognises that it needs to enter new markets if it is to sustain its current rate of growth. It is currently pushing in the direction of big-budget, run-the-business application development where licences could costs tens of thousands of dollars (instead of the few hundred dollars for the likes of MS Office). Now, it’s up to the antitrust authorities to defend the users’ interests. The US Justice Department is due to make a final ruling on whether or not Microsoft is guilty of anti-competitive behaviour this summer. One scenario is that the US government’s actions will prompt the company to offer more choice or change its conquering tactics at the risk of losing a small portion of its market share. Another is that Microsoft itself, in pursuit of further expansion, will make its own mistakes. A third, and virtually inconceivable, option would be for the users to “vote with their budgets” and stop buying the products. My bet is Microsoft will eventually be the source of its own downfall. Through all of this, the company continues to maintain that consumers love its products. That may be, but do we have a choice?