01/19/98 ONLINE ORIGINAL: THE SECRETS TO MICROSOFT'S MIGHT

THE SECRETS TO MICROSOFT'S MIGHT

What makes Microsoft so hard to beat? Windows, of course. And while critics will tell you that Microsoft cheats -- they're often short on proof. But there's something else. And it's a big something. On top of all Microsoft's strategic advantages, Gates and his minions have a unity of purpose, a hyperaggressive drive, and a long-term view that may be unmatched in the annals of capitalism. Here are some prime examples:

STICK TO IT: At Microsoft, it's standard operating procedure to stick with important development projects until the company gets them right -- even if that takes many years. Take Exchange, Microsoft's enterprise E-mail and collaboration software. The development project began in 1991 in an attempt to match Lotus' popular Notes. Progress was slow at first. But Microsoft practically assured Exchange's eventual success by taking the unusual step of inviting 20 corporations, including General Electric, Texaco, and Boeing, to help it develop Exchange from the ground up -- with the inducement that it would contain the features they valued most. And when the product was ready, these companies didn't have to spend months evaluating Exchange. The result: Microsoft has shipped 7.2 million user copies of Exchange in just 18 months -- compared to 15.3 million copies of Notes that Lotus has shipped in 9 years, according to Electronic Mail & Messaging Systems.
MAKE THE SALE: Microsoft never gives up here, either -- even when it looks at first like it doesn't stand a chance of getting the business it's after. Example: Boeing. A few months before the Exchange launch, Boeing officials told Microsoft it probably wasn't going to get the business but gave it four days to convince Boeing otherwise. Microsoft Executive Vice-President Steve Ballmer convened an emergency meeting of sales and engineering people and launched a 72-hour, round-the-clock strategizing and software coding binge. The result was a plan and software that convinced Boeing that Microsoft could make Exchange run well on Unix-based computers sold by its competitors, not just Windows machines. The result: Boeing is Microsoft's biggest customer for Exchange, with 100,000 copies installed already and on the way to perhaps 215,000.
FIND NEW FRIENDS: The art of forging partnerships is fast becoming a Microsoft core competency. And that's even under difficult circumstances. Last year, afer banks learned of Micosoft's plans to offer a consumer bill-presentment service (which lets a biller send bills and other communications to a consumer electronically), they circled their wagons around a rival effort called Integrion. Undeterred, Lewis Levin, vice-president of Microsoft's desktop finance division, made the rounds of banks to convince them that Microsoft wasn't trying to steal their customers. He also came up with a new business model -- one that gives the banks a cut of each transaction. The payoff: Last month, Wells Fargo and KeyBank announced plans to pilot-test Microsoft's service this year. Even Bank of America is kicking the tires, even though its new CEO, David Coulter, said last November that if he had one silver bullet to use on a competitor, Microsoft would be his target. "It's a paradigm shift," explains Michael DeVico, head of Bank of America's interactive banking division. "We're looking for partners who can help us, and Microsoft is one option."
GENEROSITY PAYS: Microsoft doesn't court only the powers from other industries. It's also spending $85 million this year ministering to the needs of 300,000 computer software developers. It subsidizes trade-show space for hundreds of partners. And it's not above lavishing attention on small companies when it needs their support. Example: AirMedia Inc., a 160-employee Newport Beach (Calif.) company that sells wireless Internet news delivery services. Microsoft needed backers for its method of broadcasting Web information to peoples' computers. In exchange for AirMedia signing on, Microsoft helped it line up $11.75 million in venture capital funding last fall. Playing the benevolent padrone like that is hard for less resourceful competitors, and it helps explain why, in spite of threats from Java and Netscape, Microsoft is likely to keep its tight grip on the traditional computing world. "The platforms that succeed are the ones that appeal to developers," admits Alan Baratz, president of Sun Microsystem Inc.'s JavaSoft division. He calls Microsoft's hold on the developer community its "crown jewel." Unless Baratz is able to change that, it's advantage Microsoft.
THINK SMALL: Microsoft's Internet Explorer program has become the browser of choice for most major PC makers and Internet service providers -- and for many corporations and universities. Plenty of holdouts remain, but Microsoft seems determined to keep rounding up allies. And, seemingly, no piece of business is too small to warrant its attention. When Harvard University's administrators showed no interest in shifting loyalty from Navigator to IE, Microsoft cut a deal with Matt Kramer, business manager of the Harvard Crimson student newspaper, to use a customized version of the browser. By making the deal with the Crimson, no matter how small the impact is initially, "We got our foot in the door," says Yusuf Mehdi, director of marketing for Internet Explorer. Already, of 5,000 PC users at Harvard, 1,000 of them have downloaded Internet Explorer.
SURPRISE MOVES: The campaign to make Internet Explorer reign supreme got off to a late start. Microsoft was at least a year behind rival Netscape and it's Navigator. Gates's engineers concentrated on technology at first. But the company signaled that this would be a no-stone-unturned competition 18 months ago when it won the right to supply its browser technology to America Online --archrival to Microsoft's own MSN online service. The tradeoff: AOL gets a featured position on the Windows desktop. "It was like a peace treaty with the Russians during the Cold War," crows Microsoft Vice-President Brad Chase, who negotiated the deal.
No wonder even some of Microsoft's chief rivals marvel at its resourcefulness. Says Stephen M. Case, chairman of America Online: "The history of Microsoft is that their first version is bad, their second is better, and the third is when they hit their stride." Add it all up, and what emerges is a sense of inevitability about Microsoft's victories. Sooner or later, it seems, the combination of Windows' ubiquity plus Microsoft's cash, brainpower, and relentlessness will win the company control of market after market. Right now, only a government crackdown or a concerted effort by Microsoft's competitors seems likely to slow it down -- but not stop it.
By Steve Hamm in San Mateo, Calif.

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