Windows 2003 Release Renews Integration Debate

I note with interest that, in a step that would have seemed impossible just a few years ago, Microsoft has begun marketing the integration strengths of Windows Server 2003. To understand how things have changed in recent years, we need to turn the clock back to early 1995, when the company was prepping the release of Windows 95. Back then, Microsoft found itself under increasing regulatory scrutiny because of the various technologies that it was bundling for free in its new OS. Some competitors and analysts feared that bundling these technologies, such as the TCP/IP networking stack we now all take for granted, would put enterprising third-party developers out of business. But then, the software giant revealed its plans for MSN, which was designed as a proprietary online service, not the Internet gateway it's since become. Companies such as AOL and CompuServe cried foul, the US Department of Justice (DOJ) stepped in, and within months Microsoft had signed a consent decree allowing its online services competitors space on the Win95 desktop. The fear then, as it's often been in the years since, was that Microsoft would kill existing and emerging markets simply by bundling technology in its dominant Windows OSs.

That fear wasn't realized with MSN, which flopped with consumers. But it was realized when Redmond bundled Microsoft Internet Explorer (IE) in Windows and sent Netscape Navigator's once lofty market share crashing down. Granted, other factors also contributed to Netscape's decline, but as was proven years later in Microsoft's antitrust trial, the software giant ruthlessly broke the law to stall Netscape's growth. Microsoft acted similarly with Java and the BeOS, the courts said. And Microsoft competitors Oracle and Sun Microsystems, fearing that it will happen again, have been vocal in their criticism of what they see as the favorable settlement Microsoft was able to fashion with federal authorities.

The antitrust trial was a PR disaster of epic proportions for the software giant. One might think that, after such a lengthy embarrassment, a kinder, gentler Microsoft would emerge, prepared to court bruised competitors and win back users' hearts and minds. In many ways, that's exactly what happened. Today, Microsoft is more open and forthcoming about its plans and seeks to create partnerships rather than trample roughshod in emerging markets. The new Microsoft .NET platform is based largely on open standards, and the company has worked to ensure that many of its other platforms are extensible, so third-party developers have a chance to build valuable add-on products that fill functionality gaps.

But concerns are increasing among Microsoft's competitors that this week's release of Windows 2003 proves the company has learned nothing from its lengthy legal troubles. Windows 2003 takes the concept of integration to new heights, and Microsoft is openly marketing the product as the foundation of the Windows Server System (formerly .NET Enterprise Servers), into which enterprises will plug expensive Microsoft server add-on products, such as Microsoft SQL Server and Microsoft Exchange Server. Windows 2003 will even link directly to Microsoft's dominant desktop applications suite, Microsoft Office, which not coincidentally has been renamed Microsoft Office System. Using "System" in these product names is deliberate: Microsoft is pointing out that the products in each family work well on their own but take on new levels of functionality when integrated with other Microsoft products in a cohesive system.

Microsoft openly admits that Windows 2003 is all about integration but believes that's a good thing. "We integrate things in a way that's both innovative and simplifying," Microsoft CEO Steve Ballmer said recently. "The opportunity here isn't just to get a higher percentage of servers to run with our server operating system. It's also to sell more SQL \[Server\], more Exchange, more management, and more security." Indeed, in the coming months, Microsoft will roll out a bevy of server products that run on top of Windows 2003; this year will see the most Microsoft server releases ever, the company notes.

Although competitors might bristle at the casual way in which Ballmer talks about integration, software integration is a valuable and even necessary competitive advantage. What Microsoft needs to be careful about is leveraging existing monopolies to enter new markets. The core complaint against bundling IE in Windows was that the company was leveraging the dominant Windows OS to gain market share for the browser. On the server, Microsoft holds no commanding lead in any particular market, and the Windows server is arguably fighting for its life against the upstart Linux OS, which users can license for free. By offering a more complete--and yes, integrated--solution, Microsoft is not so much repeating the mistakes of the past as it is offering a compelling reason to stick with Windows.

No one knows what the future holds, but I'll be watching with interest to see how the Windows 2003 integration message flies with cash-strapped IT departments. I will say this, however: If you'd told me 2 years ago that Microsoft would not only be working to integrate its products but would also be marketing that integration, I'd have shaken my head in disbelief. Now, it's just a sensible marketing decision. Times certainly do change.

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