The Return Of Microsoft: Part Two

Microsoft has battled back to the top of the Internet heap, with more heavy-duty products coming to market this year than ever before, profits soaring again, and more research and development money in the bank than most of the world's nations can ever get their hands on, not to mention Microsoft's many out-maneuvered competitors. Microsoft, reports Business week in a thorough report in its June 4 issue, and discussed in on Slashdot two weeks ago, is drowning in cash: $30 billion, more than any other company in the Corporate Republic formerly known as America.

Microsoft is not, as the new administration has made abuntantly clear, about to be broken up. It has cashed in on its enormously profitable near-monopolies for desktop and server software. Analysts believe it will soon return to 20 percent revenue growth, up from 14 percent today, which already is nearly double last year's.

The company is also launching a mind-boggling series of sweeping and expensive new initiatives:

• .Net services, software that permits unrelated Web sites to talk with one another and with PC programs, without the user having to open new programs or visit new sities. This is the company's wedge into Web services.

• XBox. As we know, this is the company's huge leap into the $20 billion game console business, scheduled for launch on November 9. XBox is supposed to be three times more powerful than Sony's or Nintendo's boxes, and Microsoft says it plans to spend $500 million on advertising in the first 18 months alone.

• Small Business Software. For the first time, Microsoft will jump into the $19 billion small-business software arena, says Business Week, having bought accounting software specialist Great Plains Software for $1.l billion in April. The company says it then plans to offer customer-relationship, human-resources, and supply-chain software.

• Stinger, Microsoft's latest effort at software for cellphones, begins trials in Europe later this year.
• Ultimate TV. Described by industry analysts as a "set-top box on steroids." For less than $400, this box will allow people to surf the Web and interact with TV shows, and record progams on hard drives for storage and later viewing.

On top of that, Windows XP, the biggest update in more than five years, is scheduled for late October. The company is also breaking out of the low end of the server market with Windows 2000, which began shipping last year. Services running Win2000 claimed 41 per cent of the market, says Business Week, up from 38 per cent in l999.

There's much more. MSN is now one of the most heavily-trafficked sites on the Web, the msn.com portal ranking second in this country behind Yahoo. Hotmail is the world's most used free e-mail service, and MSN Internet Access second only to AOL as the most popular consumer route to the Web. This from a company much criticized for failing to perceive the Web's importance a few years ago.

The rise of MSN demonstrates just how difficult it is to compete with this company. Were it owned by anyone else, the long-struggling MSN would have gone belly-up long ago. But Microsoft can subsidize its products through good and bad times, creating an environment in which it's difficult, if not impossible, for competitors to survive. Microsoft now operates under its own notions of Darwinian business evolution. That is, the rich prey on potential competitors and hang on until they win.

Microsoft is also getting serious about the handheld devices market; its Pocket PC has begun eating into Palm's market share. According to Net market researcher IDC, Pocket PC should hold 19 percent of the market by year's end, up from 10 percent two years ago.

The market for Windows servers grew 32 percent this year, while sales of servers running Unix grew only 14 percent.

Furthermore, Microsoft will spend $4.2 billion on research and development this year, while unleashing the above cavalcade of significant new products and initiatives, starting this week with the launch of Office XP.

Waiting in the wings are Microsoft's "pipeline initiatives," under development or planned for later launch: the first table PC; natural-language processing (talking to computers the same way you talk to people); face mapping (using digital camers to scan a PC user's head into a 3D image so that software can add a full range of emotions for gamers); information agents (software agents that sift and sort through information for businesses and consumers).

It seems almost silly to argue that this is too much power for a single company to wield over something as central to the country's business, entertainment and cultural life as the Net and the Web. But Microsoft's power is barely mentioned in politics or the popular press, and seems of little concern outside of the open source and the boardrooms of some competitors. No company has ever dominated so enormous a part of the country's economy as Microsoft is about to do. The company is moving far beyond the ability of competitors to challenge it, and thus offer consumers any real choices. In fact, the company has grown much more monopolistic than when the government sued it.

Since almost everyone who goes online intersects with a Microsoft product, there are substantial privacy concerns. It follows that MS knows more about the Web habits of Americans than any other company. And should the company ever decide to impose political or cultural values on its users and properties, it could have an enormous impact on speech and the transmission of political ideas.

The return of Microsoft, and its ferocious onslaught on well-funded new initiatives and projects is re-writing both government and civic history. We now have the Unaccountable Company, bigger than the government of the nation in which it resides, beyond the reach of legislators, regulators, citizens, critics, victims, or more individualistic and entrepeneurial competitors. People who need the Net and the Web in their personal loves or workplaces will do business with Microsoft, or they won't do business.

That returns Gates to his pre-lawsuit position as the pre-eminent figure of the Internet, invincible as Frankenstein's monster, the creature that really can't be vanquished or driven off.

---

Note: Here's Part One of this piece, if you missed it.