July 2000

Love Baby Softs?

BY RICH TEHRANI

But how can anyone hate this company? Microsoft has allowed mutual funds in many a 401K plan to do extremely well over the last 10 years. Should we hate a company that is greatly responsible for the booming Internet economy we all enjoy today? Why despise a company that has been in some small measure responsible for the microprocessor revolution, which in turn has led to a revolution in networking, which in turn has led to the growth of the Internet and of course led to the emergence of Internet telephony? Could you hate a company that supplies productivity tools such as Microsoft Word, Microsoft Windows 98 and just about every important program on most computers? In many ways, we are all indebted to Microsoft.

So with all the good that Microsoft has done, why do so many people love to hate them? As thanks for all the productivity and efficiency increases in our lives, we should all love them. Shouldn't we?

HISTORY LESSON
If you have a long memory in the computer market, you'll remember a company named Artisoft. These are the folks who make a PC-PBX product called TeleVantage, which we use in the editorial and art offices of TMC. Artisoft used to make a product called LanTastic, which was the de facto networking product for workgroups and smaller companies that couldn't afford Novell Netware. Artisoft had the small networking market sewn up until Microsoft came out with Windows For Workgroups, a product that was a fraction of the price of LanTastic with near identical functionality. Shortly thereafter, the vultures started circling around Artisoft, forcing them to change their business model. Hence, they are now in the PC-PBX business. (Those vultures may soon be circling around Novell as well.) I purchased Windows For Workgroups when it first was released and quickly standardized on it at TMC until we later migrated to Windows NT.

You don't have to have a database for a memory to recall other examples of companies that were ruined by Microsoft. Speaking of memory, who remembers Quarterdeck and speaking of databases, who remembers Borland? I remember both, and even if my memory is not perfect, I remember when Borland's Paradox was the market leader in PC databases along with Dbase. As I recall, Borland began a software price war, something that was unheard of until that time and Microsoft ended up undercutting Borland, charging $99 for Access, their competing database. I purchased Access and it was far superior to Paradox. Borland soon countered with Paradox for Windows. I was a loyal user of Borland's products but Paradox For Windows was atrocious as I recall and TMC immediately switched to Access.

Back in the late 1980s, many of you may remember a product called Quarterdeck Expanded Memory Manager (QEMM). For those of you too young to recall, PC memory architecture had limitations beyond 640k and in order to access numerous drivers on your computer, you had to load them into extended or expanded memory, the area between 640k and one MB. This was accomplished by using arcane commands such as LOADHI in the autoexec.bat and config.sys files. QEMM was a great product in that it allowed you to load more drivers onto your PC than ever before and for many years it was a number-one selling PC package. Eventually Microsoft decided to bundle a similar product into the OS and Quarterdeck was forced to walk the software plank. Can you tell I was once a loyal Quarterdeck user?

There are other examples of products that were decimated by Microsoft... Central Point Software's PC Tools Deluxe, Ashton Tate's MultiMate and of course the once number one word processor maker, WordPerfect. Do you remember Ami Pro? Ami Pro, where did you go? Has anyone ever beaten Microsoft? Definitely not Netscape, and definitely not Oracle. What does Oracle possess that makes them immune from the pressure of Microsoft's dominance? Nothing. Market share means nothing when your competition already has a strong relationship with most every customer in the world. Superior software means nothing when Microsoft has armies of engineers at their disposal to combat your latest state-of-the-art software. Lets face it, if all of the companies listed above couldn't fight Microsoft, how will anyone be able to? Whatever markets Microsoft decides to enter, they dominate. Microsoft has become the safe choice. Regardless of your feelings for MS, their software eventually becomes the leading product in almost every space.

TEHRANI'S LAW
I've come up with something I'd like to call Tehrani's Law. "He who owns the user interface owns the market." In other words, you can't compete with a company that can leverage the user's world and seamlessly continue to tie in new products.

Based upon this law, I see Linux as a great server product but no real threat to Microsoft at any point. When you own the desktop, you own everything. I used to argue with Netscape diehards years ago that Microsoft would drop kick Navigator as soon as it ties Explorer into the OS. Sure enough, Explorer has more or less become the OS. I applaud Microsoft for injecting Explorer into Windows making both the OS and browser much more intuitive. I simultaneously mourn for Netscape and any other company that sits within Microsoft's crosshairs.

MEANWHILE, IN COURT...
You may have noticed a great deal of press on the DOJ versus Microsoft case and I wanted a chance to voice my opinion on the matter before it is totally settled. This case is crucial to all of us. My very existence and my livelihood are dependent on a slew of Microsoft products and innovations. As I stated, a huge benefit of Microsoft dominance is rapid adoption of standards such as ODBC, DCOM and Active Server Pages. I would hate to see the framework for rapid standards torn to shreds yet at the same time, I hate to see other great companies with incredible new technologies go up against Microsoft.

As I write this, it seems that the government's desire to divide Microsoft into two "Baby Softs" (an OS company and an applications company) is about to take shape. Although these two divisions are unofficially called WinCo and AppsCo, I prefer calling the application division, BabyA and the OS division BabyO since this nomenclature reminds me of Baby Bells. If Microsoft is not able to successfully appeal this decision, we may have to contend with two monopolies. Both BabyO and the Office division of BabyA have been adding on a wealth of features in each new release of their products. Microsoft Office has more or less become an OS of its own, complete with a programming language and other open interfaces. I am not sure that dividing the company in two pieces will help this behavior...it could just make it worse.

Let's consider software developers in today's market, trying to sell successful software products. One huge threat that these developers face is that Microsoft will bundle a product with similar functionality into the OS. Perhaps they can even give it away for free as a standalone application. NetMeeting is such an example. If the Justice Department succeeds, we might be faced with both new babies building in software products that clone ideas of successful developers and bundling them for "free." I am not sure that free is the correct word as any new features would be paid for by the price of the upgrade but you could argue that recurring revenue streams from upgrades allow Microsoft to severely undercut the prices of competitive companies.

Imagine you're a developer and you come out with the latest whiz-bang Internet telephony software and BabyA and BabyO decide to bundle the same functionality into Office and the OS respectively. How could any company secure VC funding, if the ever-present threat of two faster and more nimble Microsoft descendents are waiting to steal your market share?

If you consider Office to be an OS, then you are effectively dealing with two OS companies. The lengthy DOJ court case was designed to break up a monopoly but wouldn't it be fairer to equate this case to one of a monopoly and dumping? If you look at this case from the eyes of the competition, isn't competing with Microsoft analogous to dealing with a company that is dumping software onto the market? After all, when you release your whiz-bang Internet telephony software into the market, your business plan calls for you to charge $69 retail per license as many companies in the Internet telephony software business once did. You proceed according to your business plan and six months later; Microsoft has a beta product with similar functionality that is to be bundled into the OS. Ouch! Where does that put the start-ups? Microsoft can continually dominate any market they choose by effectively dumping products into the market at prices that other companies could never match and remain profitable. The development costs of these incremental additions to the OS would be of minimal cost when weighed against the tremendous revenue streams that are virtually guaranteed through product upgrades.

CONCLUSION
The question remains, what is to stop these new Baby Softs from crippling the ingenious new companies in the marketplace using the same techniques above? Although the DOJ is proposing strict codes of conduct that Microsoft must adhere to, how can you stop the two new spin-offs from integrating new technologies that they didn't invent? I am not sure that we can ever solve this problem. Of course we want products from the Baby Softs to get better but we don't want competitive companies unable to make a profit in areas that Microsoft decides to enter. The DOJ feels that at least these two offspring will compete with each other and that would be great for the market. I am not sure this will completely level the playing field but it may make it easier for new entrants to compete against two smaller companies than a behemoth. Perhaps the only savior will be seen in successful applications of Tehrani's law, meaning that we may soon begin to rely on other companies to supply the OS of the future. I am not talking about Linux -- at least in present form. I am talking about the OS on your phone, your palmtop computer, your watch, your MP3 player, or your camera. As we move towards multifunction handheld devices and Web appliances, we could potentially see our computing future devoid of Microsoft dominance. If this is the case, then the free market (of which I am a proponent) will be more responsible for reigning in Microsoft's monopoly power than the DOJ. And perhaps that's the way it should be.

Rich Tehrani is President, Group Publisher, and Group Editor-in-Chief for TMC publications. He welcomes your comments at rtehrani@tmcnet.com

[ return to the July 2000 table of contents ]

Has it been a year already? We are absolutely pumped about the second annual Internet Telephony Conference & EXPO, October 4-6 at the Hotel Del in San Diego, CA. The editors of this publication and the engineers of TMC Labs have once again come together to present you with a conference program that is so leading edge, it is simply not available elsewhere.

What is scary and incredibly positive is how much the conference has changed from last year. Almost 50 percent of the conferences are brand new; a testament to how far this market has come in just 12 months.

I wish I had space to list detailed descriptions of all the sessions but I simply don't. Instead, I will just give a brief overview of the new service provider and developer/reseller tracks. Next month, I'll discuss the enterprise and general/special interest tracks. If you would like more information, please feel free to visit our Web site and remember, if you register by July 25th, you will save over $300. Please register early, as space is extremely limited in the Hotel Del Coronado as it is a world-renowned resort.

SERVICE PROVIDERS
The Evolution of the Next Gen Network: Learn how to assemble the myriad devices and protocols necessary to efficiently establish successful and worry-free IP telephony networks.

Send Your Packets First Class: Class 5 Switch Alternatives for the Network's Edge: The holy grail of the service provider market. Provide voice and data services, more inexpensively and with more flexibility than ever before.

Scaling the Internet: Network Architecture and Next Generation Switching/Routing Solutions: Explore the new services, pricing models, hardware, and software that is rapidly advancing the state-of-the-art in telecom.

How to be a Perfect Host: ASPs and Opportunities in Outsourcing: The application service provider market is growing exponentially and there seems to be no end in site. Explore the various options that can help make you become a successful ASP.

What Can the Powerline Do for VoIP? Finally some competition for the cable and DSL providers. Explore the technologies and opportunities in this new market.

Cable Telephony: Ready for Prime Time? Cable modems, the most prevalent last mile broadband devices in the land, are positioned perfectly to transmit telephony and a world of new services. Discover the opportunities that cable telephony presents.

Case Studies: The View From the Trenches: They say there is no substitute for experience, so we give you the next best thing. Finally, a way of interacting with those that have taken the plunge and deployed next-gen networks.

Broadband Wireless: Aerial Assault on the Last Mile: Learn the techniques and technologies that will help you learn how to implement broadband wireless solutions.

3Com Round Table: SIP and Interoperability: A Discussion of the Challenges and Opportunities: You'll see well over 100 vendors at Internet Telephony Conference & EXPO, this session will expound on the challenges and protocols that are involved with getting these disparate products working together.

DEVELOPER/RESELLER
Developing Internet Telephony Applications for Windows 2000: Love it or hate it, Windows 2000 is set to be the predominant server OS of the future. Come learn the special features inherent in the OS that will allow you to write killer next-gen communications applications.

Standards Shootout: Nothing is worse than developing using yesterday's standards. It is essential to come to this session to make sure you are developing on the right platform today and tomorrow.

Linux and Open Source Development: What better OS to write open IP telephony apps on? There are so many choices and so many opportunities -- come and delve into them.

Managing and Maintaining QoS in IP Networks: Once an insurmountable challenge, we are now at the point where QoS issues are effectively moot in the right hardware and software environment. We'll show you what the right environment consists of.

Funding Your Brainchild: From Blueprint to IPO: Learn to approach VCs and other sources of funding as well as essential partnering and other strategies needed to get started.