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Why Win98's Delay Is O.K.


News: Analysis & Commentary: SOFTWARE

WHY WIN98'S DELAY IS O.K.

By postponing, Microsoft does PC makers a favor

A few years ago, a delay in the delivery of a new operating system from Microsoft Corp. would have thrown the computer industry into a tizzy. That's because everyone--PC makers, software suppliers, computer retailers--counted on each new version of Microsoft's market-dominating Windows software to kick off a fresh tide of buying that raised all their boats.

But when Microsoft announced Sept. 15 that it was pushing back delivery of Windows 98 to next May from early in the first quarter, the only squeals came from investors caught in a momentary downdraft in Microsoft's stock.

In fact, most industry executives breathed a sigh of relief. Microsoft says it decided to postpone the introduction of Win98 to accommodate corporate customers who insisted on compatibility with the older Windows 3.1--which is still in use on some 100 million personal computers. The software company originally had planned a separate release with Win 3.1 support later.

NEW GOODIES. But Microsoft was also under pressure from PC makers and retailers who feared that a January debut of the operating system would cause consumers to hold off buying PCs--and slow holiday sales. "My fear was that Microsoft would have created more fear and uncertainty around Christmas," says Brian Connors, vice-president for consumer systems at IBM's PC Co., who told Microsoft as much. Microsoft denies it held off to appease PC makers. But it had already promised PC makers and retailers that it would go easy on Win98 promotion until after the holidays.

For sure, Microsoft's newest operating system is no Win95, which gave the three-year-old Windows 3.1 a new look and feel and took advantage of the powers of Pentium chips. Win98, by contrast, is a modest update, offering new goodies such as support for digital video disks.

The real draw in Win98--and the reason Microsoft wanted to get it onto the market--is its built-in Web browser, a version of Internet Explorer. It will allow users to seek the files on their hard drive or company network the same way they get material from the Web. The delay of Win98, which will put Internet Explorer front and center on millions of new PCs, is a setback for Microsoft's campaign to wrestle more of the browser market from Netscape Communications Corp.

The postponement also means forgoing, for now, the boost that Microsoft gets from an upgrade--from operating-system sales and from sales of new applications programs such as Office. Indeed, analysts now expect Microsoft's earnings growth to slow to 10% in the first quarter of 1998 and then to 7% for the June quarter--down from around 54% for the year ended last June 30.

Microsoft won't let a little product delay slow it down, though. On Sept. 30, it will launch Internet Explorer 4.0, which will feature built-in links to "content" from dozens of companies, including Warner Brothers and America Online. Some 50 PC companies will begin shipping the latest Internet Explorer on their machines this fall. Then comes the Win98 tide.By Steve Hamm in San Francisco and Amy Cortese in New York, with bureau reports


Steve Ballmer, Power Forward
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