InformationWeek: The Business Value of Technology

It's not hyperbole. Microsoft's senior executives talk about the possibility themselves. "If we don't remake ourselves, even the popularity of the PC won't keep us relevant," Microsoft president and CEO Steve Ballmer once said. "We're on another precipice." That observation was made last year. For Ballmer and his friend and chief software architect Bill Gates, the precipice now must seem a little higher, a little steeper.

Late last week, Microsoft awaited a government proposal to Judge Thomas Penfield Jackson, who's overseeing Microsoft's ongoing antitrust trial, that could include a forced spin-off of the company's Office applications division-and possibly its Internet business. On April 24, the first trading day after the company reported slower-than-expected revenue growth, Microsoft saw its stock plunge 16% to $66.625. That was a new 52-week low-more than 44% below its high of $119.937 in December.

In the midst of all this, Microsoft is embarking on a critically important plan to keep its proprietary Windows products relevant in the open world of Web computing. Under a project called Next Generation Windows Services (NGWS), Microsoft is recoding its operating system and related software to serve as a platform for hosted Internet services. In an interview at last week's Windows Hardware Engineering Conference in New Orleans, Gates summed it up this way: "We're stepping back and saying, 'What is it that could be better about the Internet?'"

That may be a good way of summing up Microsoft's challenge: Make the Internet better, and the company stays relevant. Don't, and it won't.

In addition to devoting hours of his time to the antitrust trial, Gates is deeply involved in the NGWS project. He's leading an eight-person development team that wrote a prototype user interface for Windows combining speech recognition, the Extensible Markup Language, and influences from Microsoft's Web browser and Office groups. Gates says that work has taken much of his time this month-underscoring the seriousness of the effort while in the throes of Microsoft's all-important court case. Sometime soon, the world will get to see the results of the development effort. The team plans to show its work at Forum 2000, an upcoming conference at which the company will detail its NGWS strategy.

Microsoft is also putting the finishing touches on a high-end version of Windows 2000 called DataCenter Server and its new SQL Server 2000 database, both due this summer. The products promise more scalability on a platform that's knocked for its slow progress on that front. A 64-bit version of the operating system is due later this year. All are key to Microsoft's ability to provide scalable Web site and E-commerce infrastructures.

Microsoft needs to work fast because it's getting squeezed at both ends. Sun Microsystems is solidifying its hold on sales to enterprise customers and big dot-coms that need to process lots of transactions, while the rising popularity of the Linux operating system at the low end of the server market is a nettlesome development for the folks in Redmond, Wash. "The biggest challenge for us is to keep moving full speed ahead," developing new technology that combines the work being done in Microsoft's labs with "course corrections" from customers, Gates says.

On the matter of Microsoft's scalability soft spot, Gates points to the near-term release of DataCenter Server and a new Windows 2000 DataCenter Program, introduced last week, as moves that will vault Windows 2000 up the enterprise ladder. As part of the program, he says, hardware vendors will provide customers with on-site installation, inspection, service, and remotely monitored uptime guarantees similar to what a company would get in a mainframe environment. "So somebody can say it's not just a theoretical thing that Windows 2000 has this huge performance and reliability," Gates says. "That's probably even more than a year of work before it's just common sense to everyone the same way it is on the desktop today."

But some observers sense Microsoft has already fallen dangerously behind. "Once Microsoft gets onto an idea, it tends to progressively achieve those goals," such as improving Windows' reliability and security or building developer tools aimed at heavy-traffic Internet sites, says Kaj Pedersen, VP of engineering at Quote.com, a subsidiary of Lycos Inc. in Mountain View, Calif., that provides real-time stock quotes and financial research. "But they have to do it in a different environment on the Internet. It's more of a grassroots type of marketing. They've got a long road ahead."

continued...page 2, 3