When Microsoft Becomes a Small Fish in a Big Pond, the Rules Change

Whether or not you agree with the massive antitrust lawsuit that has beset Microsoft, a recent turn of events suggests that the company wouldn't be doing so well if it didn't have an absolute lock on the desktop PC market. I think we can all agree that Microsoft has a certain amount of—let's say—leverage when it comes to dealing with its PC-maker partners, such as Compaq, Dell, and IBM. Let's face it: These companies rely on Windows to power the vast majority of the products they sell, and that's not going to change any time soon. So PC makers are beholden to Microsoft in a way that's rather distressing, from their point of view.

As the Microsoft antitrust trial revealed, this dependency came to a head in 1997, when Microsoft chose to delay Windows 95's successor, code-named Memphis, which would have been released as Windows 97. The cause was Netscape's announcement, made that fall, that the company would release a Web-enabled Windows desktop replacement known as Constellation. Microsoft, then trailing Netscape in the browser wars, changed its plans and pulled early alpha builds of its forthcoming Internet Explorer (IE) 4.0 product. Microsoft decided that IE 4.0 would include a Web-enabled desktop and, most disturbingly, would be integrated into Windows so that Netscape would have a harder time maintaining its control over the Windows-based Web browser market.

We all know what happened next: Windows 98 was released 9 months late and was integrated with the new IE 4.0, which included a Web-based Active Desktop, Web Channels, and a Web-enabled file manager. Because these features came free with the system—and Microsoft sells more than 100 million copies of Windows a year to PC makers—Netscape quickly lost its grip on the Web browser market. And Windows users were stuck with an increasingly buggy OS, thanks to IE. Constellation did actually come to market—sort of—as Netcaster, a Java-based monstrosity that never grabbed the minds and hearts of consumers thanks to its slow speed and half-complete interface. (Netcaster was bundled with Netscape Communicator 4.0 and cancelled after the 4.08 release.)

Microsoft's decision to delay the release of Windows solely to harm Netscape caused PC makers, who had been counting on big sales during the 1997 holiday season, to lose millions of dollars. (For WinInfo Daily UPDATE's extensive past coverage of these events, see the links at the end of the commentary.) Microsoft got away with this move because its business partners had no other choice: Customers wouldn't accept another desktop OS instead of Windows.

Flash forward 3 years. Today, we see an interesting twist on this story. Microsoft, sensing that the market is changing from desktop computing to a variety of Web-enabled, Internet-connected devices, has changed its product strategy. In addition to its desktop Windows products, which the company will improve and support for the foreseeable future, Microsoft is trying to get its OSs into every conceivable device, including cell phones, routers, dedicated Internet connectivity stations, and interactive TV set-top boxes. The set-top boxes are at the heart of a controversy similar to the Netscape/Win98 story—because giant cable companies—including AT&T and Europe's United Pan-European Communications (UPC)—are gearing up to release the set-top devices to tens of millions of customers later this year.

But the set-top release plan has encountered a problem: Microsoft has delayed the release of the OS software the companies planned to use, which is based on Windows CE. Microsoft might have a good reason for this delay—the software could be buggy and not ready for primetime—and I'm not suggesting that the company is doing anything as nefarious as its 1997 delay of Windows. But the company's position in today's world is different: Microsoft's new hardware partners have a choice. AT&T and UPC are currently weighing their options and could very well go with a non-Microsoft solution—because competitors abound in this market. The cable-based set-top box market differs vastly from the PC market, in which Microsoft can determine product destinies through sheer economic force. In today's burgeoning markets, where Microsoft has no such dominance, the company finds that it's just another player in a crowded field.

For customers, this change is a good thing. If Microsoft succeeds in the market, the company will do so because its products are better and more full-featured, and not simply because it can dictate how the market evolves. And the company recently revealed that it's hedging its Windows CE plans with a version of Whistler that will power interactive TV set-top boxes. Maybe the post-PC world isn't so bad after all.


TAGS: Windows 8
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