BUSINESSWEEK ONLINE : MAY 8, 2000 ISSUE
COVER STORY

How Long Will Microsoft Play Second Fiddle?


Microsoft Corp. (MSFT) CEO Steven A. Ballmer could barely contain himself after announcing a deal on Mar. 13 with Andersen Consulting. Andersen would train 25,000 consultants to put together high-end computer systems using the software giant's technology. Ballmer called it a ''pinch me'' moment. Now Microsoft would have the consulting firepower to bid on huge contracts, especially in the lucrative market for business-to-business Internet software.

It may take more than a nip-on-the-arm moment for Microsoft to beat back archrival Oracle Corp. (ORCL), especially if it faces a possible breakup. When it comes to PC software, Microsoft only sees Oracle through its rearview mirror. But in the world of database and e-commerce software for building robust Web sites, Microsoft is sucking Oracle's exhaust. ''Microsoft has not been a factor in the B2B market. They're not driving any business momentum--and that's the big growth area,'' says Morgan Stanley Dean Witter analyst Charles E. Phillips.

BEEFING UP. Microsoft denies it's an also-ran. ''What's so good about their performance?'' Ballmer says of Oracle. ''Maybe they'll pull it off. But I wouldn't trade spots with them.'' He's confident because Microsoft is in the midst of a massive effort to leapfrog ahead in the e-business sphere. The software giant's new Windows 2000 software is the company's first product that has enough muscle to power the biggest computer networks. Combine that with SQL Server 2000, its new database that will be released later this year, and Microsoft says it will be able to handle the busiest Web sites. Moreover, the company is beefing up its software for Web-site sales and is creating technology that helps companies trade products with one another via the Web.

Still, all of Ballmer's bravado could be for naught. The federal government may push to split Microsoft's operating-system business from its software-applications operations to remedy the software giant's monopolistic abuses. If it succeeds, Windows 2000 may end up in a different company than the database program and the two products would have to compete with Oracle independently. That could make the gap between Microsoft and Oracle Grand Canyon-esque.

Even then, don't count Microsoft out. It has gained a smidgen of ground in the database business. According to Dataquest Inc. analyst Norma Schroder, Microsoft's SQL Server 7.0, launched in November, 1998, helped the company line up dot-com business and crack the corporate computer market. She hasn't completed her analysis of 1999, but preliminary data suggest that Microsoft's share of the database market may grow a couple of percentage points from the 10.2% she gave it in 1998.

Still, Oracle's lead in selling databases for both the Windows 2000 and Unix operating systems will put it well ahead of Microsoft in 1999--with a market share in the high 20s. Analyst Carl Olofson of International Data Corp., who measures the database market differently, gave Microsoft just a 5.1% market share in 1998 and believes leaders Oracle and IBM will hold their own against Microsoft when the results are in for 1999.

Just the notion that Oracle is leading in e-business software gets under Microsoft's skin. Microsoft isn't used to playing second fiddle, particularly to a company run by Larry Ellison, who has made a sport of mocking it. ''That will keep Microsoft alive and running like hell,'' says Usama Fayyad, a former senior Microsoft researcher who helped develop the soon-to-be-released SQL Server 2000 and recently left Microsoft to start his own Internet startup, digiMine.com.

With the intense Ballmer leading its charge, it's a safe bet that Microsoft won't let up until it's a serious player in e-business software.

By Jay Greene in Seattle

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