Big Game Hunter Bill Gates

When Microsoft Corp. unveiled its Windows for Workgroups software, it put on a show with Broadway dancers. For the debut of a new data-base program, it treated 1,000 guests to champagne and shrimp at Caesar's Palace. Now, the software giant is ready to launch the most ambitious product in its 18-year history: Windows NT, a new-generation operating system. What's up for the May 24 debut? A seven-minute documentary, followed by a technical talk. Says Microsoft Vice-President Jonathan Lazarus: "This is a product for people with serious business needs."

Serious business is right. Windows NT has been six years and $150 million in the making. The operating system is not only a high-budget product but a high-stakes leap onto new turf. Says Microsoft Chairman William H. Gates III: "It sort of defines how high the ceilings will be around here."

How high is up? If Windows NT clicks, it could extend Microsoft's reach from the world of spreadsheets and word processing to the electronic heart of big business--corporate jobs such as accounting, inventory management, and transaction processing that are now done on mainframes or minicomputers. Designed for the so-called client-server networks that are capable of such tasks, it's the company's first operating system that will run on different types of computers--not just PCs.

For now, however, Gates is playing down expectations. He acknowledges that it will be a big challenge for Microsoft to convince global corporations that NT can run their critical operations--even their entire companies. After all, prospective buyers will be asked to switch to a newcomer from such entrenched suppliers as IBM, Novell, Hewlett-Packard, and Sun Microsystems. They all sell operating systems that already do much of what NT promises (table). "Microsoft has no track record in this market," says Roel Pieper, president of Unix System Laboratories Inc., an operating-system developer that is being acquired by Novell Inc.

Still, NT is stirring up a caldron of excitement. First off, unlike Microsoft's MS-DOS, which can handle only 16 bits of data at a time, Windows NT takes full advantage of the powers of 32-bit microprocessors. In addition, it includes built-in security features and "multitasking," the ability to run many applications at once. NT also sports the same easy-to-use look of regular Windows. The resulting 4-million-line program is four times as big as any other Microsoft offering. It's the handiwork of a 200-person team headed by David N. Cutler, the father of Digital Equipment Corp.'s VMS operating system.

DOUBLE PLAY. All this makes Microsoft a serious contender for client-server setups, in which networks of desktop computers get data and programs from hub machines known as servers. To play in this market, Microsoft will sell two versions of NT. The desktop edition will go for $495 ($295 for current owners of Windows or IBM's OS/2). An "Advanced Server" edition lists for $2,995 but is being offered at $1,495 for the first six months.

But even the most ardent NT fans are planning a slow conversion. Bill Bunch, systems administrator for stapler maker Stanley-Bostich Inc., has been testing desktop NT for seven months and calls it "a killer. Gates has his head screwed on right with this one," he says. Still, Bunch is being cautious about installing NT on the company's 200-plus PCs. One reason is cost: He doesn't want to pay $400 per PC to upgrade to NT requirements--12 megabytes of memory and 75 megabytes of disk storage. So Bunch will buy only "several" copies.

Some potential buyers just don't want to be the first to try out brand-new goods. Microsoft says it's stamping out NT's bugs and will ship finished versions of the two new programs within 90 days. But many customers foresee a long haul. "It's likely to take several years for people to trust it," says David Bennett, information director for Dunkin' Donuts Inc.

Gates knows that customers are cautious. "We have modest initial expectations for Windows NT sales compared with the overall sales of Windows," he says. Gates aims to sell 1 million copies--mostly the desktop version--in the first 12 months. Those are healthy sales in the world of workstation and server software but skimpy compared with volumes in the PC world. Paul Johnson, an analyst with First Boston Corp., figures first-year NT revenue will be $450 million--$250 million from the desktop and $200 million from 100,000 server units.

That revenue won't make or break Microsoft, which is operating at about a $4 billion annual rate. But a slow start could give competitors a chance to head off NT. On May 18, for example, IBM upped the ante by introducing an improved version of its 32-bit system, OS/2. It handles multimedia--mixing video and digital sound. And since OS/2 can run on PCs with eight megabytes of memory, IBM is aggressively pursuing the larger desktop market rather than servers, says Lee Reiswig Jr., Big Blue's president of Personal Software Products. To fight Microsoft, he's pricing OS/2 at $79 for now, while launching a series of attack advertisements branding NT as a "Nice Try." Says Reiswig: "I think we can win this war."

TAKING THE HIGH ROAD. Meanwhile, Steve Jobs is recasting NeXT Computer Inc. as an operating-systems supplier for many types of computers. On May 25, NeXT will introduce an Intel-compatible version of its NextStep software, which has become a favorite of advanced programmers.

Microsoft's biggest challenge will be knocking off Unix, which is sold by dozens of suppliers. Sun Microsystems Inc. is trying to catch NT shoppers with a PC version of its Unix, Solaris. And Novell, which already has 70% of the market for PC-networking software, is expected to complete its $350 million acquisition of Unix Systems Labs in June. USL sells the "source code" on which various versions of Unix, such as Solaris, are based. Univel, a joint venture between USL and Novell, sells a $250 desktop package called UnixWare for personal computers based on Intel Corp.'s chips. Says Univel President Joel Applebaum: "NT is not a shoo-in."

No, but it's a born front-runner. Some 59% of 200 big corporations surveyed by the Business Research Group in Newton, Mass., say they are likely to implement NT. That compares with 39% for Unix and 36% for IBM's OS/2.

Microsoft's $20 million budget for spreading the NT gospel won't hurt. So far, it has signed up more than 65,000 applications-software developers, more than 200 distributors, plus more than 20 computer makers. Explains Phillip E. White, chief executive of data-base software maker Informix Corp.: "Microsoft had the last big wave, Windows, and everybody wants to catch the next big one." Operating-system surfing is serious business indeed.

Before it's here, it's on the Bloomberg Terminal.