It’s becoming fashionable to present Microsoft Corp as the final and undisputed winner in the race for world domination in the software market that matters, the one for personal computers. Presented with the piteous spectacle of IBM Corp, the company until so recently regarded as the undisputed world champion of the computer industry, even the most fanatical adherent to the belief that Microsoft and its youthful chairman Bill Gates walk effortlessly on water should be given pause for deep thought.

Apparent victory

After all, IBM started winning in 1964 with the launch of System 360, was already widely seen as the out and out winner by 1970 when System 370 was launched, and apart from a little carping here and there (mostly here in Computergram) from 1984 onwards, looked like the overall winner right up to 1990 – most notably to itself and its top brass, who firmly continued to behave as if the company was invincible despite rapidly growing evidence to the contrary. IBM won the mainframe generation by a knock-out, achieved a draw in the mid-range with Digital Equipment Corp, and until PS/2 and the Micro Channel were recognised as having feet of clay, appeared to have won the desktop as well. Its apparent victory on the desktop had to be shared with Microsoft and Intel Corp – but it shouldn’t be forgotten that Intel only became the mighty company that it is today because in December 1992, IBM bankrolled it to the tune of several hundred million dollars in return for a stake of near 20% and an option to go to 30%. Handicapped by anti-trust considerations, IBM felt unable to pursue that investment to its limit, and once it was clear that Intel really would survive and was generating enough cash to develop all the future chips that IBM felt it would require, IBM magnanimously sold its Intel shares for a fraction of what they would fetch today – and how welcome that cash would have been to IBM in its present ravaged state. Microsoft needed no such bail-out, but it should be remembered that when it rather belatedly went public in early 1986, it was regarded as an interesting new software play and nothing more – but then it was still doing no more that $150m or so a year – a far cry from today’s near-$4,000m. But just a minute – if Microsoft is being regarded as the dominant player in an industry in which IBM still does nearly $60,000m a year of business, Fujitsu Ltd does near $30,000m, Hewlett-Packard Co is knocking on the door of $20,000m, Apple Computer Inc is an $8,000m a year company, surely Microsoft must be doing rather more than $4,000m in annual turnover. Well no, actually: for the year to June 30, it had sales of about $3,700m on which it made a very healthy profit of some $950m. Nice figures indeed, but hardly a springboard to world domination in an industry where DEC does $14,000m a year and even Computer Automation International Inc is doing $1,800m a year, most of it out of moribund mainframe software.

Moribund

Few would dispute that in comparison with most of the really big players in the industry, Microsoft is sitting very pretty indeed today – yet the company has only one genuine number one hit to its name: not MS-DOS, which became the de facto standard only faut de mieux and because IBM adopted it for its original Personal Computer; not Excel – the spreadsheet may hold a slender market lead just now, but asked by a pollster to name a spreadsheet, 85% of users would say 1-2-3 even if they used Excel; not Word – Wordperfect has the edge; database – what was Microsoft’s database called again? Network operating systems? You must be joking. No, Microsoft’s entire reputation rests on the success of Windows, and that success was won only because the company was opportunistic enough to recognise when it was itself responsible for OS/2 – and lauding the memory-greedy operating system to the skies – that the market wasn’t listening and was instead saying give us a better Windows. Moreover it is beginning to look as if Microsoft has made a near fatal mistake with Windows NT by allowing the hype around the product

to build to a point where there was no possibility that it could live up to its pre-publicity. In the past six months, the company – much too late – has started back-peddling furiously on NT, but much of the damage has been done, and NT begins to look as if it will have a struggle to become even as successful as OS/2 any time soon. With no really hot new products in its locker for the current fiscal year, Microsoft is only too well aware that the kind of growth and profitability its fans now take for granted will be very hard to achieve this fiscal year. Indeed the crucial difference between Microsoft now and IBM for most of the time between 1970 and 1990 is that where IBM took success in the market for granted, Microsoft makes it clear that it is only too well aware of the narrow line between continuing success and disaster. But even with that awareness, continued success is by no means entirely in the company’s own hands. There is a growing threat of a personal computer price war in software every bit as painful and destructive as the price war in hardware has been. We have highlighted over the past few months the way in which IBM seems to be assiduously building profitless volume in personal computer hardware: if a serious price war breaks out in personal computer software, Microsoft’s fat profit margins would start to melt away like snow at the vernal equinox, and its 11,000 employees would start feeling the same fear for their jobs as pervades all those currently employed in hardware manufacturing.

Precipice

And there is very little that Microsoft can do about it: little of its software is so much better than that of the competition that it could get away with charging a big premium for it, and the company would be left with the alternatives of either exiting markets that became too competitive, or mixing it in the gutter like everyone else. It would no doubt take the latter course, but by then, fat margins on the kinds of products with which its fortune has been built would be gone forever. The history of the computer industry teaches us that just around the corner, there will be something new that changes the picture completely – but history also teaches us that the winners in one generation are almost always also-rans in the next generation. One way and another, regardless of what unsportsmanlike practices the company may be proved to pursue, Microsoft’s position is no less precarious than that of its competitors: the only difference is that it has more to lose. And the only reason that one can feel any confidence that the company won’t suffer the same fate as IBM is that it appears to be much more aware than IBM ever was of just how close to the edge of the precipice it is forced by circumstance to travel.