Microsoft's future without Gates: Sound as ever

The Jakarta Post , Jakarta | Mon, 07/03/2006 4:48 PM | Life

Arnawa Widagda, Contributor, Jakarta

Last month, the biggest news from the IT industry was unquestionably Bill Gates' announcement that he will retire from Microsoft in two years. While this caught everyone off guard, it's not unprecedented.

Microsoft under Gates has been very successful. However, the industry is changing, and Microsoft has to change, too, if it wants to stay ahead.

Under Gates' command, Microsoft has been a force to be reckoned with.

In 1995, the company unveiled Windows 95 and ushered in a new era of computing by providing several key innovations: multitasking, plug and play, and a much more user-friendly interface. Windows 95 also fed the demand for faster processors, larger memory and multimedia peripherals.

However, Microsoft was behind in keeping up with the newest technology of that era, the Internet. Netscape Communications became the darling of the industry. A threat also emerged from Sun Microsystems in the form of the Java platform. That enabled software developers to write network-aware programs that would run on all machines, even non-Windows ones, without having to code to a specific platform.

Microsoft struck back, releasing a new browser, Internet Explorer, and their own Java implementation. Needless to say, Sun and the Java developer community cried foul. They insisted Microsoft play along with the rest of the industry. A heated debate and mountains of lawsuits and counter lawsuits ensued.

Several years later, Microsoft conceded and reiterated their support for the Java platform -- without the use of Microsoft's proprietary standards.

On the Internet front, Microsoft's efforts were much more subtle, though no less potent. They delivered Internet Explorer 5 and 6, which back then were much more stable and standards-compliant than Netscape's Navigator 4.

Trouble was brewing, though.

As allegations of strong-arm tactics and foul play proliferated, Microsoft faced its strongest challenge and was brought to court on antitrust charges. Despite years of grueling legal battles, and despite being declared a monopoly, Microsoft endured.

During those years, it released Windows 98 and its successor, Windows Millennium Edition for home and personal users. For the corporate market, the release of Windows 2000 brought the most prized features of Windows 95, plug and play and a new user interface, to the much-needed Windows NT platform.

In the new millennium, Microsoft found humility and promised to be 'kinder and gentler'. But Microsoft is still Microsoft and now it faced a new rival: the open source community with its darling project, Linux. Linux had matured into a very stable and secure network platform that's easy to work with. Linux's deep UNIX roots made transitions and development from UNIX easier, plus it's free to use and the community openly shares its source code. Microsoft thus found itself facing a new rival not only in networking, but on the desktop front as well.

Microsoft then began preparing for the release of its newest version of Windows, Windows XP.

With previous versions of Windows, Microsoft had to support two code bases -- one for Windows 95 to ME and one for Windows NT and 2000. With Windows XP, there would be only one code base, although there would still be separate versions for personal users and corporate users. The advantage of this approach is clear: It's much easier to maintain one code base than two. It also brought much needed stability, security and network features from the Windows NT platform to the crash-prone and less secure desktop platform.

However, security issues plagued Windows XP until Microsoft released its second Service Pack 2. During this time, Bill Gates passed the torch to long time friend and co-founder, Steve Ballmer, who became CEO. Gates took the position of Chief Software Architect and personally monitored the development of Microsoft's newest version of Windows, Windows Vista.

Fast-forwarding to today, we find Microsoft repeatedly delaying Vista. The company is also under threat on the Internet from Google and from its longtime rivals, the open source community with its Netscape-derived Mozilla family of browsers. Apple has also made the move to Intel processors, providing users an alternative with MacOS X.

Now, if there's something to be learned from Microsoft's history, it's that they will endure. The IT industry is much larger than just the PC business nowadays. Much like Apple with the iPod, Microsoft has made inroads into markets outside the PC; into information appliances such as smartphones, PDAs, and WebTV. In the multimedia appliance market, there's the portable Windows Media Player, the home personal video recorder and the very media-friendly version of Windows, Windows Media Center Edition. More important, they have also gained a lot of ground in the console market with the Xbox and Xbox 360.

While they may not the dominant player in these markets, they are a major force and still a force to be reckoned with, perhaps even more so than ever.

No doubt, much of Microsoft's business will still revolve around the PC. Profit from Windows and other software such as Office remains their biggest revenue stream to date. Revenues from other sources are low; in fact, the Home and Entertainment division responsible for most of these new markets remains unprofitable. However, the loss gets much smaller with every passing year.

It's safe to say that while Bill Gates is a big part of Microsoft, there are lots of other smart, talented people there. More than anything, Bill Gates' plan to retire signifies a change in Microsoft's focus, to focus not just on the PC but IT in general.

Financially, even if the majority of users do not use Vista, at least not immediately, they will probably use Office, which accounts for roughly 27 percent of Microsoft's software revenue. Even if you're one of those independent-minded Mac users, you'll probably use Office on your Mac.

Some info on Microsoft's financial data

Client (In millions, except percentages)

2003 2004 2005 Revenue $10,394 $11,546 $12,234 Operating income $7,960 $8,654 $9,442

Client includes revenue from Windows XP Professional and Home, Media Center Edition, Tablet PC Edition, and other standard Windows operating systems

Server and Tools (In millions, except percentages)

2003 2004 2005 Revenue $7,192 $8,538 $9,885 Operating income $1,160 $1,418 $3,259

Server and Tools consists of server software licenses and client access licenses (CALs) for Windows Server, Microsoft SQL Server, Exchange Server, and other server products

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