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The future looks bright for Microsoft

By Gerry Patterson

Just how Bright is the future for Microsoft? Lately Microsoft has become very coy about the word "Dominance". The preferred term in official releases is "Leadership". Semantics aside, there are some striking similarities between the Market Share and Market Power of the world's most successful software corporation in the noughties and IBM in the eighties. There are also some important differences. This article poses the question: Could Microsoft be following a parallel path to IBM last century? The answer may be a qualified yes.

Bright Horizons

Is the future bright for Microsoft? It would certainly seem so. However, there may be some dark clouds looming on that bright horizon. A survey of opinions on the web, regarding Microsoft's market share reveals the following results:

Microsoft Market Share
Server Operating System 35-60%
Client Operating System 90-95%
Client Applications 85-90%
Client Browser 75-85%
Client Development Tools 65-75%

Table 1: Market Share -- Estimates taken from the Web (Feb 2002)

With the exception of the first category, there seems to be considerable agreement about these figures. The server Operating System category exhibits some variance, probably because it depends on whether a particular survey measures unit sales or total revenue and whether it covers all hardware platforms or just Intel platforms.

In any case, most commentators would concede that Microsoft has grabbed in excess of ninety percent of the desktop market, with some putting the figure as high as ninety-eight percent for Intel Desktop Clients. Which in anyone's book, qualifies as a dominant market position. Surely Microsoft's future is bright when the corporation seems to be at the zenith of its' power?

The Past.

To interpret this position of dominance we need to take a little trip back in time to the last century. Back to the sixties, a decade which will have nostalgic significance for any baby-boomers reading this. Extraordinary as it may seem today, this was an era when caftans and beads were considered fashionable. Not for IBM employees, however, who seemed to be well paid, mostly young men in neat blue suits and white shirts, and it must be said, also bore a disturbing resemblance to Mormons. In Australia, even their engineers wore suits. Which was almost unique. Most organisations dressed their engineers in overalls. If your IBM system should misbehave itself, a couple of regular IBM engineers, dressed in shiny black shoes and regulation dark blue suits would arrive at your site, bearing large heavy blue boxes, looking, for all the world, like members of the Church of Latter Day Saints. Unlike the latter, these clean-cut young men didn't want your prayers and money, just your money. The defective equipment would be covered up and placed in one of the boxes and whisked quietly away. Order had been restored and the Universe was a safer place. And the Universe seemed to be mostly IBM or IBM-compatible. By the end of the sixties, Big Blue had grabbed a slice of the IT pie that was considered by most to be somewhere in excess of ninety per cent. Despite some malcontents who complained about IBM's tactics, the computer giant continued to grow throughout the sixties and the seventies.

By the time the eighties arrived, IBM seem to have undisputed market dominance. However, there were several problems for the IT giant. A long legal action with the Department of Justice and a looming microcomputer revolution were causing some concern. How IBM lost their extraordinary dominance was, in part, due to a foolish deal the company made with Bill Gates and Steve Ballmer. There are many things that under-pinned this remarkable act of corporate self-demolition, but we should give credit to the guile of the architect of that famous deal. However, the decline in IBM's market dominance was not entirely due to Bill's evil genius. A large part of IBM's undoing was due to their own arrogance. They refused to take the microcomputer seriously. And when firms like Apple began to show that the PC was more than just a toy, IBM was finally forced to respond in some fashion. The response was to quickly throw together an OEM package, using off-the-shelf hardware and third-party software. They unwisely assumed that all they had to do to maintain control of this package was tack an IBM badge on the front. This turned out to be an expensive mistake. Another big factor in IBM's waning fortune was the widespread hostility felt towards Big Blue Brother in the IT and business sector. This antipathy had been brewing for a long time and had been generated by IBM's unfair business practices, which were monopolistic and downright predatory. There were many examples of changes made to the operating system to prevent other vendors' equipment and software from functioning with "genuine" IBM systems. There were changes made that had no other purpose than to "persuade" customers to upgrade their systems. Some people also took exception to IBM's bundling of software and hardware, and saw it as no more than an attempt to lock other vendors out of the market. The Department of Justice eventually took a similar view and charged IBM under the provisions of the Sherman Act. Proceedings had commenced as the sixties drew to a close and the ensuing legal battle dragged out through the seventies and into the mid-eighties.

IBM eventually staved off the anti-trust litigation but a lot of critics were able to vent their spleen during the case. Also IBM started to take steps during and after the legal action designed to show the world that they weren't an evil monopoly ... they were just misunderstood nice guys! They started "unbundling" software and created separate divisions to make it look as though they had turned over a new leaf. Dedicated critics would dub these attempts as unconvincing window dressing. However, many of these initiatives did shift IBM's focus back to participating in the market by virtue of genuine competition rather than just strangling the competition. As an added twist, the ill-fated venture into the PC market may have been one of these very initiatives, which helped accelerate their downfall. All of which is outlined in Paul Carroll's well-known 1993 book, "The Unmaking of IBM", which apparently goes into the back room politics of the famous deal in considerable detail.

The problem for IBM was, that by the time the eighties' PC revolution got going, they had very few genuine friends, and a legion of sincere and dedicated enemies. Some of them were young analysts and programmers, skeptical of IBM's cumbersome hierarchy of imposed standards. Some were customers, who wanted cheaper systems, and were fed-up with having expensive upgrades foisted upon them. Many were competitors or ex-competitors who believed that IBM's primary concern was blocking access to markets, and that the company was unwilling to participate in fair competition. In all, they were diverse lot united by a hatred of IBM. Big Blue was fighting a battle on many fronts, and thanks to the Department of Justice, was fighting with one hand tied behind its' back. As the Dow Jones approached its peak in the fabulous decade of greed, the full implications of putting the IBM emblem on what was, ostensibly a Microsoft/Intel system, began to sink in.

It became apparent that, although it was not written in their mission statement, one of Microsoft's objectives was to cause maximum damage to IBM. Evidently the Microsoft CEO had been an undercover member of the anti-IBM league all along. The relationship between Microsoft and IBM deteriorated into all-out, but asymmetric conflict. The asymmetry was due to the different structures, sizes, technologies and skill sets that IBM and Microsoft possessed. IBM had developed computer systems in an era when CPU was incredibly expensive. Core and secondary storage was almost as costly. Microsoft, on the other hand, developed systems using a technology which had shrunk the CPU down to a single inexpensive chip. Cheap low power RAM replaced core, and secondary storage devices had also shrunk in physical size and power-consumption, but providing hugely increased logical capacity. IBM had developed systems that would share the extremely expensive resources among many users. Whereas Microsoft developed systems that would devote cheap readily available resources to a single user. Applications for the Microsoft/Intel platform were all developed on the new low-cost, simplified model. However, as the systems developed from the bottom up, they began to join together in networks. Microsoft had done little to discourage the booming clone market, in fact they may even have encouraged it. And so IBM was losing its' grip on the microcomputer market. Microsoft/Intel networks were challenging the minicomputers that had seemed so revolutionary in the previous decade and Blind Freddy could see that this thrust from below would probably push the minicomputer up into mainframe territory, and might even result in microcomputers storming the citadel themselves. And so in a desperate last-ditch effort to recapture the microcomputer market, IBM played the PS/2 card. The PS/2 hardware with its micro channel architecture and genuine multi-tasking operating system, OS/2, was superior to the Microsoft/Intel offering, but it was also a spectacular failure. It seems that the customers, the IT sector and the business community had been waiting a long time for the opportunity to stick the boot into IBM. And when the opportunity presented itself they sunk the slipper in with savage relish. And so, Big Blue started to sink. Of course IBM is still with us today, much diminished, suitably chastened, possibly even showing signs of genuine humility and dare one say it ... contrition?.

Now do any elements of this story sound familiar? The answer is obviously a resounding yes! Apart from the humility and contrition, Microsoft's behaviour has been very similar. But the pain and penance is yet to come for Microsoft.

Now, before moving on to consider the present day situation at Microsoft, it may be illuminating to summarise the situation for IBM in the eighties. This was as follows:

  1. Market dominance of ninety percent or greater. From this position the market leader developed a strategy which seemed to have a been aimed at blocking potential competitors from getting product to market.
  2. Action by the Department of Justice because of this anti-competitive behaviour.
  3. Loss of good will amongst the customer and user base, and continual growth of enemies in the IT sector. These were also largely a result of business practices whose principal aim was the strangulation of potential competitors rather than offering better product.
  4. A Challenge from a new player that used a radically new technology, which was cheaper and superior. Although this technology differed fundamentally from the older technology, the conflict would eventually move into the same market niche as the older technology. However the difference in the two technologies exposed some fatal flaws in IBM's corporate strategy:
    • Initially the threat was unrecognized. Later when it was recognized it was ignored.
    • An attempt was made to embrace the new technology, which legitimized it. The venture was flawed however because it was primarily owned by the new players in the developing market conflict.
    • The conflict was asymmetric, much like an elephant fighting a horde of ants. This asymmetry was exacerbated by constraints imposed by anti-trust litigation.

The Present.

The previous paragraph contains a summary of the situation for IBM in the eighties. On the other hand the situation for Microsoft today, is as follows:
  1. Market dominance of ninety percent or greater. And a deliberate policy of preventing competitors from getting product to market. Bill Gates has been quoted as referring to this as "cutting off their oxygen supply".
  2. Action by the Department of Justice because of this anti-competitive behaviour, which still looks as though it will have on-going ramifications.
  3. Loss of good will amongst the customer and user base, and continual growth of enemies in the IT sector. This has been largely a result of business practices whose principal aim was the strangulation of potential competitors rather than offering better product.
  4. A challenge from a new player (The World Wide Web) using a technology which differs fundamentally from the older PC based technology. This actually arose in the nineties, but as with the microcomputer and IBM, seemed to exist in a blind spot in the Microsoft global strategy, and was dismissed as irrelevant. It has since emerged as a genuine threat. Microsoft has engaged with the new technology by:
    • Attempting to take over the new technology by producing its own proprietary tools to interface with it. The tools were "bundled" with the Microsoft operating system.
    • Persuading users to upgrade to the latest Microsoft product with tactical features included with each release.
As a result, another asymmetric conflict looms, which it seems will have some similarities to the conflict in the previous century between IBM and Microsoft. It will be a battle between Microsoft and a new technology which Microsoft, after attempting to ignore, has belatedly tried to embrace. A battle in which the new product is cheaper, more reliable, faster and (of recent significance) more secure. And a battle in which Microsoft may also be constrained by anti-trust litigation.

The Future.

So could history repeat itself? Although it is not really true to say that history ever repeats itself, those who do not learn from the mistakes documented in the past are often doomed to suffer similar misfortunes. And the parallels between Microsoft today and IBM last century are so close, it is tempting to mouth that over-used cliche about repetitive history. There are some important similarities to consider. One of which is the technological difference. In the previous century there was a distinct difference between the technology employed by Microsoft and IBM. In a similar manner there is a difference between the Microsoft technology and the newer web based technology. This may come as a surprise to some readers, since Microsoft has spent a lot of money and resources promoting itself as a new technology player. This propaganda campaign has been remarkably successful. In the minds of many people Microsoft is one with the Internet. Those who are not knowledgeable about the history of the World Wide Web, might be forgiven for thinking that Microsoft practically invented the Internet. In actual fact Microsoft's technology has changed little in the past two decades. It remains heavily biased towards the single user/machine model. This model assumes that a single customer on a single system runs software provided by a third party (i.e. Microsoft). The corporate model which has evolved from this basic architecture, places the corporation (Microsoft) at the centre of a Sales Network. The corporation owns the source code, and the sales network distributes the software as identical binaries (executable programs) amongst a large customer base of compatible machines. This is still the case even when the latest software calls for multi-user and multi-processor operating systems.

The more recent Open Source model, a product of the World Wide Web, has a structure which, ironically, bears some resemblance to the ancient mainframe model. Nevertheless it does represent an important paradigm shift. The most significant difference from Microsoft technology is the distributed development system which relies on a large base of workers, many of whom are amateurs. And it only works if something like the World Wide Web exists! Significantly, one of the outputs of this technology is the technology itself (as had been the case for Microsoft's development twenty years earlier). As an added twist, it may have been Microsoft's fierce competition which drove the price for this new technology down to zero. As a result of extreme competition and complicated legal constraints which had been brewing for many years, the new player(s) decided to offer the source code for free. The response from Microsoft has been:

Although similar tactics were effective in the battle for the desktop in the eighties and were employed against Netscape in the mid-nineties, they have met with limited success in the battle for the Internet which, it seems, has proven too big a meal even for a giant the size of Microsoft. The other negative side effect of these tactics has been that they added fuel to DOJ litigation.

While it is possible to make a case for many similarities between Microsoft today and IBM in the eighties, it is important not to forget the differences, some of which are detailed below:

The restructuring of Microsoft may even be underway as this is written. In an initiative which could be seen as reminiscent of the belated emphasis on the World Wide Web, Bill Gates issued an edict which exhorted Microsoft staff to focus attention on security. The memo, which was apparently titled Trustworthy Computing, was circulated in mid January 2002, and the contents were made public about a month later. However, as already discussed, the task of making secure software could be immense. Leaving aside fanciful solutions like shipping the next Microsoft release as a Linux Distribution, it would seem to require the re-invention of the corporation, its' product and its' customers. And so, it remains to be seen whether the Trustworthy Computing initiative is a genuine change of direction or just window dressing to shore up share prices.


In conclusion it can be said that future may still be on the bright side, though not dazzlingly so, for Microsoft. The future for Microsoft employees on the other hand may be very interesting. Some of them may soon be singing:

The future's so bright ... I gotta wear shades!


Most of this article has been written from personal experience in the computer industry going back three decades. However a quick search of the web with google reveals the following references, which should help show that the author is not just making it up as he goes ...

Microsoft Market Share Figures were compiled by a survey of the web. This is subjective, since so many sources on the web refer to each other. Where possible, four figures were obtained from different sources, using different search engines and the highest and lowest figures were reported (hence the ranges).

Big Blues:
The Unmaking of IBM
by Paul Carroll
Which the author of this article has not read (but intends to one day). This well known book goes into the back-room politics that surrounded the legendary deal that started Citizen Gates on the road to building his own Xanadu. It was published circa 1993.

A Letter By Ralph Nader 2001, Which claims that Microsoft's cash reserves are a staggering $36 Billion.

An Article by Kelly McNeill 2001, Which states that the corporation's cash reserves were $30 Billion in early 2001.

An Article in Motley Fool 2002, Asserts that Microsoft's cash reserves were $36 Billion in Jan 2002.

An Article by James Gleick 1999, Takes a more sinister and possibly fatalistic view of Microsoft as a monopoly. It is largely a reprint of an article published in the New York Times Magazine in 1995.

Code Red Hits Microsoft July 2001, A remarkable article that details the compromise of an Official Microsoft Update Portal by the very worm that at the time they were supposed to release security patchs for. This article belongs in the funny if it wasn't true category.

United States vs Microsoft (Current) For the legally inclined, is the official Anti-trust Case Filings in the current DOJ case.

Media Coverage of that memo ABC News Radio ran the story on Trustworthy Computing around February 2002. There have also been articles in The Age computer section, as well as other print and electronic media. The web, of course, has prodigious coverage of this memo. All of which heightens the suspicion that it may only be "spin". Readers can view some of the hype and controversy surrounding this initiative by clicking on the link to Google on the left or just try any search engine with the phrase: "Trustworthy+Computing+Microsoft".

An Article by Brian McWilliams 2002, Which like many others takes a rather skeptical view of the Trustworthy Computing Initiative.

Since this article was written, there have been a number of additions on the topic of open source. These are: