At the annual Comdex computer-industry gathering in Las Vegas last month, William H. Gates III passed several late-night hours playing high-stakes poker in a far corner of the Mirage casino. It's an old pastime from the 40-year-old Microsoft chairman's college days.
Now for the really high stakes. The tough hands. The wily adversaries. On to the Internet. Gates has been caught remarkably flat-footed by the birth of the raucous World Wide Web. He acknowledged as much last May when he fired off a widely leaked internal memo urging every employee to make the Internet a top priority.
Since then, quicker rivals, such as Netscape Communications Corp. and Sun Microsystems Inc., have grabbed the lead and are setting the agenda. In a series of stunning announcements during the first week of December, more than 30 companies--including IBM, Oracle, Apple Computer, and Silicon Graphics--committed to building Internet software around Sun and Netscape standards. Says James H. Clark, chairman and founder of Netscape: "The Internet basically blew apart [Microsoft's] whole strategy."
Now, Gates is scrambling to refine a game plan for the Web era. Returning to his Redmond (Wash.) office after a two-week trip to promote his book The Road Ahead, Gates wrestled with details of a Dec. 7 briefing with analysts and reporters. The event's purpose: to erase the public perception that Microsoft Corp. is lagging behind rivals--and lay out the company's role on the Net.
On the eve of the meeting, various initiatives were still being considered by Microsoft's brain trust--including supporting the Java programming language from the Netscape/Sun camp. Among the definite plans: the introduction of a product called VB Script, which, like Java, can be used to write applications that work across the Web; renaming the forthcoming Blackbird "authoring" language (originally intended only for the Microsoft Network) as Internet Studio; and repositioning MSN from a proprietary service to more of a Web site. The company is also accelerating plans to make all of its programs Web-compatible. For instance, its Internet Information Server will be included in versions of Windows NT.
MORE TO COME. Meanwhile, an ever-increasing portion of the company's research-and-development budget is being dedicated to Internet projects, say insiders. Microsoft is also expected to unleash a steady stream of Internet and Web announcements in coming months.
Will it be enough? That depends on how fast Microsoft can move. "Name one product that Microsoft announced that they shipped within two years of when they started talking about it," snipes Sun CEO Scott G. McNealy. With each new announcement, meanwhile, the coalition around Sun and Netscape becomes more formidable. A dozen companies are licensing Java, a programming system that makes it possible to zap little programs--applets--to any device on the Web. Applets can be used to create "active content"--say, an animated weather map that reflects changing conditions in real time or a loan application with its own calculator.
In fact, programming such as Java may make it possible to cruise the Net without a PC--and without Microsoft software. A half-dozen companies, from Sun to Oracle to IBM, are talking about low-cost Internet boxes that would sell for a fraction of the price of a PC. Some pundits predict that phone companies will give these gadgets away as they do cellular phones now.
In the battle for publicity, Java has already won. In reality, the era of Web-based programming is just dawning, and Microsoft hasn't really lost anything yet. In fact, it has a major strength in its Visual Basic, a language now used by 3 million programmers to create Windows applications. The new VB Script, based on Visual Basic, will move those programmers to the Web. And Microsoft's Object Linking & Embedding (OLE) technology is being adapted to let software "objects" communicate over the Net, potentially to create Java-like applets.
In some quarters, Microsoft's technology is compelling. Marc Benioff, senior vice-president for Oracle's Web/Workgroup Systems unit, says his company plans to use both Java and Microsoft's VB Script. Microsoft, in turn, will use Oracle's browser technology.
Microsoft's biggest trump card is the huge base of customers who use Windows 95 and, increasingly, Windows NT. These days, Windows 95 is shipped with software for the Microsoft Network, which is being repositioned as a gateway to the Internet. The company also plans to include its Internet Explorer Web browser in future versions.
HIDDEN HAND. But does the market understand that? Gates admits he'll have to work to convince the world that his company can adapt to--and prevail in--the new order. "Java is the language that is the darling of the industry right now," concedes Gates. "It's a good example of how, in this industry, people are always looking for the next thing that will unseat the giants."
Ultimately, Microsoft may have to support Java. It's almost certain to build some Java compatibility into its Internet Explorer Web browser--perhaps early next year--so customers will be able to handle Java applets. Even so, the competition isn't discounting Microsoft's considerable clout. "I never write them off. They're still in a position of intense power," says Clark. Adds Netscape co-founder Marc Andreessen: "I don't think Microsoft has played its hand yet."
No question, Microsoft retains a mighty hand. Even as the Sun-Netscape gang was announcing its new recruits, the Justice Dept. was raising questions about Microsoft's alleged anticompetitive behavior. In recent weeks, the feds have sought information from online-service providers, including CompuServe Inc. and Netcom On-Line, signaling a new twist in its long probe. The question: Has Microsoft intentionally built into Windows 95 code that prevents rival software programs from linking a PC to online services and the Internet? Microsoft denies such accusations.
To date, the feds haven't shown a true willingness to take on Microsoft. And few industry experts think Microsoft's Internet woes are insurmountable. Says Tim Bajarin, president of researcher Creative Strategies Research International: "If they play their cards right and make sure future applications and programming languages are Internet-ready, they will come from behind and become a leader." There aren't too many, certainly, who will bet against Bill Gates.
-- WEB CRUISERS
Makers of computers and chips are developing inexpensive, stripped-down devices for hooking in to the Net without any Microsoft software
-- ANTITRUST PROBE
The Justice Dept. is renewing its investigation into alleged anticompetitive behavior--now focusing on the online market