Is Microsoft going down the tubes?

While Microsoft's revenues continue to grow, its rate of increase has dropped. Productivity apps and developer tools sales fell 9.9% in the last reported quarter. If developers start looking elsewhere, it'll be a matter of time that consumers will, too.
Written by Steven Vaughan-Nichols, Senior Contributing Editor
Microsoft is on its way out. The bare statement that Microsoft is starting the long slide to becoming just another company probably sounds idiotic to most of you. Even with its stock sinking, it's still worth more than most small countries and chances are you're reading this using Internet Explorer on a Microsoft operating system. Things change.

Back in 1995, with Microsoft 95, Office 95 and NT 4, Microsoft consolidated its personal desktop rule and made deep inroads into the server market. Alternative desktop operating systems, like OS/2, began permanent declines. WordPerfect Office and Lotus SmartSuite became almost irrelevant. And in the server market, we saw Netware begin a long fall into the server operating system dustbin.

Today, Microsoft presents users with a bewildering array of end-user operating system options: Windows 95, Windows 98 SE, Windows ME, Windows 2000 Professional and Windows CE. With so much potential confusion, is it any wonder that people are beginning to look at other end-user operating systems? Corel Linux, a consumer's Linux, while far from a hit, has garnered a small following. As the Unix desktop interface programs KDE and Gnome mature, we can look forward to seeing even more user-friendly interfaces appearing on top of Linux, the BSD OSes and Solaris.

Think that none of those are really suitable for a desktop? Think again. Many hardware OEMs--like market leaders, Compaq, Dell, Gateway and IBM--are now placing Linux desktops on PCs due to customer demand. Even Sun, with its new Sun Ray line, is giving the desktop market another try. Give users a familiar, Windows-like interface--which you can do with both KDE and they can use with both KDE and Gnome--and a low price tag, and you've got the making of a Windows' killer.

The usual response to that by Microsoft fans is, "But there aren't any applications!" Give me a break. You've got Sun's Star Office and VistaSource's Applixware for office work, Netscape Navigator for a browser and mail readers that aren't susceptible to Outlook Transmitted Diseases (OTD) like Melissa. That argument hasn't held water for years.

And as for servers, International Data Corporation numbers show that Linux is taking the server operating system world by storm. Microsoft's other server enemies, such as IBM, Sun and SCO--shortly to be incorporated into Caldera System--also are riding the Linux bandwagon to server victory.

Simultaneously, a new price war is developing in PCs as peripheral makers, such as display giant ViewSonic, move into making computers and Internet appliances. When a Windows license is often the single most expensive item in a PC, some vendors are already shipping devices that come sans Windows. The IBM Network Station line, thin-client computers for business, has BSD Unix at its heart. Consumer Internet appliances, like Netpliance's i-opener, also are typically Windows free.

Microsoft itself, with its support for the still unproven application-service-providers model, is moving away from its former revenue sources of box operating system and applications sells. Even Microsoft .NET, MS' grand plan for reorganization of its products and the entire Internet into Microsoft proprietary technologies, is a major shift away from Microsoft's traditional revenue streams.

There are good reasons why Microsoft is doing that. The traditional box application sales model is dying as surely as the hardware box sales model did before it.

While Microsoft's revenues continue to grow, its rate of increase has dropped back to mere human levels. But perhaps most telling of all, productivity applications and developer tools sales actually fell 9.9 percent in the last reported quarter.

If developers are beginning to look elsewhere, it's only a matter of time until consumers will, as well.

Put it all together--viable alternatives, near flat revenue gains, an increasingly cost conscious audience, the changing of the management guard, the shadow of lawsuits and the DOJ case--and the end of Microsoft's incredible run of computing dominance is in sight.

Sound impossible? People said that about IBM and General Motors, too. Like them, Microsoft won't stop being a major player, but it no longer will be the bully of the computing sandlot.

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