The Bloor Perspective: Sun on Wall Street, Microsoft on desktop, and the lost dreams of free ISPs

Industry guru, Robin Bloor, and his team of analysts cast their eyes back over the latest top stories to hit the industry. Under the spotlight this week: Sun, Microsoft and the free ISP...

Just as the world was looking to the UK to lead the way in the free Internet Service Provider market, the ISPs appear to have dropped the baton. Let's take some examples. Currantbun.com - the News International ISP being offered to readers of the mass-market newspaper The Sun - has been canned to be replaced by Bun.com. Freeserve shares are now worth less than the IPO price. AOL UK subscribers are threatening to walk out on the service provider. And to cap it all, Screaming.net has been indicted by the consumer programme, Watchdog, with paper evidence of customers being charged for so-called 'free services'. What is going on? Well, in reality, the dream could not sustain itself. The fact is that there is no verifiable revenue model for free ISPs. Given this, all that is left is the promise of market share or, at least subscriber share. Trouble is, as we all know, the audience is anything but captive, particularly when the ISP can offer very little that is not being given away elsewhere on the Net. But the site provides news, they cry. Well, so does the BBC, and so on. We expect ASPs (Application Service providers) to be a huge market for ISPs, initially for businesses, but ultimately for consumers as well (see http://www.silicon.com/a33489 for a video interview with Bill Schrader, chairman and CEO of PSINet). Similarly, online shopping will offer a market, but so far it hasn't given ISPs a way to differentiate themselves from anyone else. The fact is that the model is the wrong way around: a free Web connection is a bonus to be provided to customers of a given service, rather than a way to get a motley band of subscribers together in an effort to sell them anything under the sun. ISPs in the UK started the free trend and now have little choice but to deliver on it. Thus they will only be able to do this when they offer a truly differentiating range of services to the UK consumer. In the meantime, we can expect a continuation of the turmoil that we are witnessing right now. *Sun continues to shine on Wall Street... * It's been an interesting few days on the market (see http://www.silicon.com/a33498 ). With earnings at 33 cents per share, Sun finished its first fiscal quarter of Year 2000 beating analysts' expectations by two cents. With its ISP successes, Java story and now StarOffice, the company would appear to be full steam ahead for a successful year. A large part of this can be attributed to the fact that the Sun platform has become "the enterprise platform of the Internet". This has far more to do with marketing and alliances than technology, though admittedly the high-end of Sun hardware has grown up to encompass the kind of transactional capability that we expect of ecommerce sites. What of Java? The programming language has achieved widespread acceptance (according to our own figures, 28 per cent of programming job ads are for Java, compared to 38 per cent for C++ - and the gap is closing). However one of Java's essential strengths is its portability, so it cannot be seen as one of the technical drivers towards using Sun. All in all, a pretty slick campaign in this phase of technology where managing the mainstream is at least as important as having a good product. So that's Sun's first goal met. Given the way the Web is going, Sun would have to make some pretty big mistakes to lose its market share. Microsoft won the desktop and, with Windows 2000, will make more inroads into the departmental market - but the enterprise will remain a Windows exclusion zone for the foreseeable future. Now, to Sun's second goal, which is dubbed 'self-protection' by senior execs at the company. The company has already realised that the next major battle to be fought is for application service provision-providers, or ASPs. The model however, is going to force a decision over which compatible set of applications can be provided. As always, this boils down to, "Should we run a Microsoft configuration, or not?" At the moment, despite most of their functionality being ignored, Microsoft Word, Excel and PowerPoint are the de facto desktop applications. This may be for no other reason than file compatibility, but ASP customers are unlikely to move to a set of services that cannot read their existing files. *... and prepares to take on Microsoft on the desktop* Enter StarOffice, which reads MS Office files like a native. It is unlikely that Sun sees StarOffice as a strategic application. More realistically it is a non-application, intended to remove differentiators from the Microsoft-based offering. Microsoft applications need Microsoft OS, which needs Intel hardware - it's that simple. If Sun does not challenge the perception that MS Office is essential, then the corporation may end up losing a sizeable part of its ISP business. It is interesting to note Scott McNealy's recent comments concerning his doubts about the Microsoft break-up - given the size of the prize, it is likely he would prefer one big target to shoot at (see http://www.silicon.com/a33381 ). Despite this impending battle between Sun and Microsoft, Microsoft reported yet another good quarter - its first quarter of fiscal 2000 - just beating analysts' estimates, thanks to reported revenue of $5.38bn; a 28 per cent increase over $4.19bn in the same period last year. Net income was $2.19bn, or 38 cents per share. Greg Maffei, Microsoft's Chief Financial Officer, suggested at the post-release conference call that analysts should increase their second-quarter earnings projections by three cents per share; in effect giving warning that Microsoft was expecting another good quarter. The company also said that it would release a final version of the Windows 2000 operating system to manufacturers before the end of the year. Microsoft is already making preparations for the Windows 2000 launch and, although there has been speculation that it may be delayed, we believe that Microsoft is simply trying to get the timing right. Launching around the New Year would not be sensible, so the earliest likely launch is in February. Even if it is very successful, Windows 2000 is unlikely to boost Microsoft's revenues in this fiscal year. For more analysis from Bloor Research, see www.it-director.com .