April 9, 1999
Behind Microsoft's Shift on Windows
A Fear That Consumers May Go Somewhere Else Tomorrow
By JOHN MARKOFF
SAN FRANCISCO -- Microsoft's decision not to blend its consumer and
business Windows operating systems into a single product reflects
profound changes in the consumer personal computer marketplace that
have surprised both the software giant and its partner, Intel.
lmost overnight the PC market has moved from a business defined by
office products to one that is increasingly delineated by both
consumer prices and features.
Microsoft's shift became apparent on Wednesday at a Los Angeles
hardware developers' conference, when Steven A. Ballmer, Microsoft's
president, announced that the company was abandoning plans to tailor
its long delayed Windows 2000 operating system to desktop PC's as
well as more powerful corporate machines. Instead, it plans at least
one more release of its aging Windows operating system for desktop
computers. A version, based on Windows 98 that is scheduled to ship
this fall, will fix software flaws and add some new consumer-oriented
Then the company, based in Redmond, Wash., plans "sometime in 2000"
to release a new consumer version of Windows that will offer an
as-yet-unannounced set of easy-to-use consumer features, such as
Ballmer said the changes arose from listening to Microsoft's
customers -- PC makers and software developers -- who contended that
the Windows 2000 combined product was not appropriate for consumer
markets increasingly focused on games and entertainment and not
The shift, industry analysts said, may indicate that Microsoft has
found itself at a crossroads as significant as the one it faced in
1995 when it abruptly shifted direction and embraced the growing
By redefining the computer marketplace and acknowledging the failure
of its strategy to use a single operating system for desktop
machines, Microsoft is leaving itself vulnerable to competition --
just as Intel is being successfully attacked at the low end of the
chip market by companies like Advanced Micro Devices and Cyrix.
Moreover, consumer electronics companies like Sony are investing in
software and operating systems and refining consumer products like
its Playstation line so they will increasingly serve as Internet
"This is an explosive problem," said Mark Anderson, president of
Technology Alliance Partners, a research and consulting firm based in
Friday Harbor, Wash. "The consumer market will be the largest market
in the world for operating systems," and Microsoft does not have a
Ballmer's strategy shift included an acknowledgment that the
company's "Simple PC" initiative, intended to clean up the
increasingly complex design of the PC, had not gone far enough. That
effort, in connection with Intel has now been renamed "Easy PC," and
Microsoft's president said that it would remain a multiyear effort.
Moreover, Ballmer, by announcing Microsoft's intent to add the new
consumer operating system between its Windows 98 and Windows CE
product lines, is in effect admitting that the company's CE strategy
has been a disappointment.
In its recent corporate reorganization, the Windows CE consumer
product line was divided between set-top box and hand-held and
portable groups. The shift raised questions about the future of
Windows CE, which has so far had only lukewarm support among
At the same time, Anderson said, while Intel's failure to respond
quickly enough to the threat at the low end was a billion-dollar
mistake, Microsoft may not pay such a price if it responds promptly
because there are not yet viable competitors in the consumer space.
For example, the Linux operating system remains at least a year away
from being simple enough to install and having a meaningful number of
consumer applications. And the Be operating system, developed by Be
Inc., of Menlo Park, Calif., has yet to take off.
And although Apple Computer has gained some market share and been
revitalized since the return of its co-founder, Steven P. Jobs, it
still remains at a price disadvantage to PC's in consumer markets.
Still, the competitive situation at the low end of the PC market is
likely to become more volatile because the Windows 98 operating
system is increasingly the wrong product for consumers who are
oriented toward entertainment and away from Microsoft's Office
"This is just the tip of the iceberg," said Jeffrey Tarter, the
editor of Softletter, an industry newsletter based in Watertown,
Mass. "The real problem is the more you look at the innards of
Windows the more complicated and more flaky it gets. I don't see any
way that they can fix the mess they created without going back to the
That appears to be exactly what Microsoft is doing in announcing a
new consumer operating system that may appear in the year 2000 or
2001. Ballmer said the new operating system would include advances in
digital media handling, home networking, Internet technologies and
improvements in the ease of installation and use. That product
outline has evoked a skeptical response from competitors.
"At a risk of being called sexist, ageist and French," said Jean
Louis Gassee, chairman of Be, "if you put multimedia, a leather skirt
and lipstick on a grandmother and take her to a nightclub, she's
still not going to get lucky."
Even with its consumer plans in a state of flux, Microsoft also
announced plans for its corporate Windows 2000 operating system,
raising new concerns that by fragmenting its product line the company
may inadvertently sew confusion among customers.
"This raised a red flag for me," said Louis J. Mazzucchelli Jr., a
financial analyst at Gerard Klauer Mattison, a New York investment
He said that the company now had as many as four or more versions of
its high-end Windows 2000 operating system (formerly Windows NT) in
"Remember when Apple had more than 17 different product lines?" he
said. "I have trouble understanding how Microsoft is going to keep
customers from becoming confused."
In addition to Windows Server Appliance, which Ballmer announced on
Wednesday, he said the company was working on Windows 2000, Windows
2000 Professional, Windows 2000 Server, Windows 2000 Advanced Server
and Windows 2000 Data Center.
Conceivably, this could leave the software developer at a
disadvantage against Linux and other versions of the Unix operating
system, which have been growing rapidly among both Internet server
and software developer markets.