| BUSINESSWEEK ONLINE : MAY 24, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- EUROPEAN BUSINESS
Microsoft's Euro-Assault (int'l edition) Can Gates control Net access? Georges Nahon would seem to have a dream job. His skyscraper office faces lovely Paris, his budget is virtually limitless, and as director of the Internet and communications unit of Microsoft Corp.'s European operations, he has a chance to shape Europe's digital future. He must push Microsoft's Windows CE operating system and compatible Web browsers onto Europe's next generation of high-speed Internet machines, from Web phones in Germany to digital decoder boxes for French television. But while the concept is simple, the execution is maddeningly complex. Nahon faces a continent not only divided by borders and languages but also splintered into competing technologies. Microsoft generates more than $4 billion a year in European software sales, and its Windows system is in almost every personal computer. Yet it is far from dominating Europe's Internet market. Why? It boils down to PC ownership in Europe. Half of all U.S. households have computers, most of them running on Windows. So Microsoft is betting that PC-addicted Americans will want their other Internet devices to feature compatible Windows CE software. European households have just half as many PCs and are thus far less attached to Microsoft. What's more, back home Microsoft can try to buy Internet market share with megadeals that cover the nation--such as its $5 billion investment in AT&T on May 6. But in Europe, it must hammer out scores of local partnerships. ''Everything's country by country,'' says Nahon. THE VISION. These obstacles aren't stopping the software giant. If Microsoft can capture the European market for Internet services, it will hold a key position at the heart of Europe's $600 billion telecommunications industry. And the company will become a front-runner in European E-commerce, which research firm International Data Corp. expects to grow from $5.6 billion now to $250 billion in 2002. A leadership role in Europe would also pay technology dividends for Microsoft. Europe is far ahead of the U.S. in key technologies, such as cell phones and digital TVs. This means the next generation of Internet innovations could emerge from the Old World. Whatever shape these new machines assume, Microsoft wants Windows CE to be inside them. So Microsoft is barging into nearly every European market. It's investing in hardware companies, such as France's Thomson Multimedia, so they'll install Windows CE in their machines. To push its Internet offerings into homes, Microsoft is buying heavily into cable TV, especially in Britain. Earlier this year, it paid $500 million for a minority stake in British cable company NTL. On May 6, as part of the AT&T deal, it agreed to take a 29.9% stake in the largest cable company in Britain, Telewest Communications PLC, for an undisclosed amount of Microsoft stock. Microsoft's next step, say industry insiders, could be a major investment in Cable & Wireless PLC, No. 2 among Britain's three big cable companies. With these acquisitions, Microsoft is poised to become a titan of Britain's rapidly consolidating cable industry, which it hopes will carry its Internet technology throughout the country. It then wants to extend Internet services through the rest of Europe's heavily cabled north. One partner there is Amsterdam-based United Pan-Europe Communications. Microsoft last winter spent $300 million for a minority stake in the broadband-communications company, which has wired 4 million homes in nine European countries for Internet, telephone, and TV connections. Microsoft faces greater challenges in Europe's south, where fewer people speak English and where satellite and digitally broadcast TV do fine without Windows. France's Canal +, the regional leader in digital TV, has millions of customers in France, Spain, and Italy already equipped with set-top decoder boxes. These are easily adapted for Web TV, which Canal + plans to offer by yearend. Microsoft pushed to get Windows CE into Canal + boxes, to no avail. ''I don't see what Windows CE would add,'' sniffs Henri Joubaud, Canal + senior vice-president for technology. Meanwhile, NetGem, a Paris-based startup, is building boxes powered by Linux operating systems, Windows' fast-growing archrival. Initially at least, NetGem is stealing the march on Microsoft, shipping its boxes to a host of telephone companies eager to break into Web TV, from Deutsche Telekom to Finland's Sonera Ltd. The response at Microsoft is to pull out its thick wallet. Intent on forging a place for itself in set-top boxes, it picked up a 7.5% stake in France's Thomson Multimedia this year. ''This was the way to get [Thomson] to adopt Windows CE,'' says Therese Torris, director of European Internet commerce at Forrester Research Inc. Microsoft has also forged close ties with Philips Electronics, Europe's leader in consumer electronics. The Dutch company is building a suite of products, from set-top boxes to handheld computers, with Windows CE. Just as important as TV connections in Europe are Internet hookups to cellular phones, a market in which Microsoft is struggling for a foothold. A year ago, Chairman William H. Gates III lobbied to have Europe's cell phone makers adopt Windows for the next generation of Internet-equipped mobile phones. But global leaders Nokia and Ericsson preferred the EPOC operating system of British handheld computer maker Psion PLC. NETWORKING. So Microsoft is forging partnerships to prop up Windows CE. Last winter, it announced a joint venture with BT to develop mobile phone connections to corporate Intranets. The logic is that corporations with technology-dependent workers around the world will be among the first to spring for mobile data connections. Microsoft does have some advantages in Europe over the local competition. It has been selling operating systems for PCs and servers there for two decades. The big phone companies, for example, are among its largest customers on the Continent and are likely to become allies as telephone, TV, and computer technologies merge. Still, the merger mania in Europe makes it tricky to nail down partnerships. The pending deal between Deutsche Telekom and Telecom Italia, for example, threatens to split the Continent into factions. Such tussling was in part what led Nahon earlier this spring to tiny Portugal. In partnership with Portugal Telecom, he wants to use the country as a laboratory for interactive TV and data services that Microsoft could eventually customize and export to the rest of Europe, and even the U.S. The key, of course, is to invent Internet applications that customers are willing to pay for. Americans accustomed to using Windows on their ubiquitous PCs may be more likely to go for the familiar system when the next generation of Internet devices is born. In Europe, Microsoft may have a rougher time digging itself a strong position. By Stephen Baker and Marsha Johnston in Paris, with Heidi Dawley in London _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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