WHY MICROSOFT WENT TO THE MAT FOR WIN98 It wants to clear a path for Windows NT The first legal maneuvers in the Justice Dept.'s May 18 antitrust suit against Microsoft Corp. (MSFT) have just begun. But already, government investigators are looking ahead to what might be a much more crucial fight--over Windows NT, the Microsoft operating system now used to run corporate networks and destined to become Microsoft's core technology in the next few years. Windows 98 is a battle, but NT will be the war. Even before the lawsuit was filed, several Microsoft competitors had taken their gripes concerning Windows NT to the Justice Dept. They say Microsoft is using the power of its Windows desktop monopoly--plus tactics it used to gain its grip on the market--to help boost sales of Windows NT. This includes, they say, practices that pressure software developers now using Windows to adopt NT for more advanced systems rather than using competing products. ''There's much more jeopardy for the industry with NT than with Windows 98 and the browser,'' says John McFarlane, president of Sun Microsystems Inc.'s (SUNW) Solaris software division. While Windows NT is not mentioned in the antitrust suit, a judge could rule that it, too, is covered if Justice succeeds in its effort to bar allegedly anticompetitive Microsoft practices. A consent decree could set precedents that apply to NT, says Stephen D. Houck, assistant attorney for New York State. ''It will be clear even to Microsoft that it can't engage in these kinds of practices.'' Beyond that, Justice officials are gathering evidence for a case that might target Windows NT explicitly. So, it's no wonder that Microsoft is determined to nip the first case in the bud. ''We want to win this for Windows 98, and to defend the principle of innovation for our other products--including Windows NT,'' says Brad Chase, vice-president for Windows marketing. Especially NT--is more like it. The company is using Windows NT as a battering ram to penetrate the $30 billion-plus corporate software market. And so far, it's working. For the fiscal year beginning in July, revenues for Windows NT and related applications are expected to reach $3.9 billion, or 23% of total revenues, according to NationsBank Montgomery Securities Inc. Microsoft doesn't have a monopoly with Windows NT, but it's gaining market share at a gallop. Last year, it had a 39.8% share of server units sold, up from 24.5% the previous year, according to International Data Corp. Critics argue that both operating systems should be counted together. ''They've announced that Windows 98 and Windows NT will ultimately be one operating system, so it's just one big monopoly,'' says an executive at a competing software company. Microsoft denies that it has a monopoly--or has done anything illegal in the network operating system business. At the same time, it's not backing off. Just as it bundles a browser with Windows 95--the move that set off Justice's inquiry--Microsoft also includes a free Web server with Windows NT. Now, it plans to bundle an Internet-based directory. ''We won't be distracted by speculative legal action,'' says Jeffrey S. Raikes, group vice-president for sales. LIFE-THREATENING. Raikes points out that customers benefit from new features in Windows NT and its applications. The pricing is certainly compelling. For example, Microsoft's SQL server, which sells for about $900 for a basic setup, gets thrown into the application suite with Windows NT at no extra charge. Competitors say this amounts to predatory pricing and will make customers dependent on Microsoft. Indeed, for small software companies, it can be life-threatening when Microsoft bundles a new feature. Arbor Software Corp. (ARSW), for instance, agreed to merge with a larger company after Microsoft announced it would give away a new data-analysis tool that Arbor sells for $60,000 per server. ''You can't compete with free,'' says Arbor vice-president Kirk Cruikshank. Larger competitors aren't immune, either. In January, when Novell Inc. (NOVL) began selling a directory to go on top of Windows NT Server, Microsoft announced that any customer who bought it would no longer receive Windows NT support from Microsoft, according to Novell. Microsoft backed off, admitting a mistake. But according to Novell, the damage was done. RALLYING CRY. In an effort to stop this kind of practice, the Software Publishers Assn. has prepared a 50-page report on Microsoft's Windows NT tactics. The chief concerns: bundling and pricing. The report also charges that Microsoft uses Windows to promote NT by requiring software developers who want their products to be certified as Windows-compatible to make sure they run on NT, too. While the debate goes on and the lawyers are revving their engines, Microsoft is still a long way from dominance in the corporate computing realm. Its software rivals are praying that the government can somehow keep it that way. By Steve Hamm, with Robert D. Hof, in San Mateo, Calif., and with Susan B. Garland in Washington RELATED ITEMS JUST HOW MUCH DOES WINDOWS 98 COST?

Updated June 4, 1998 by bwwebmaster
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