Bypassing Windows

Big makers will ship PCs that don't need operating systems

Thomas Penfield Jackson, the Federal District Court Judge hearing the Microsoft antitrust trial, holds the keys to the software giant's future. But so do Compaq Computer, Hewlett-Packard, and Dell Computer. For years, these companies--and other computer makers that distribute Microsoft programs with their hardware--have obediently trotted out whatever new product Microsoft Corp. offered and hewed to whatever strategic directions the folks in Redmond issued for the industry.

Lately, however, they're showing signs of independence. In the fast-growing market for server computers, the machines that dole out Web pages across the Internet or send E-mail around a corporation, the top PC companies are beginning to look at non-Microsoft options. The first is Linux, a server operating system that is available for free on the Internet. Compaq, Dell, and HP are shipping or will soon ship computers with Linux instead of Windows NT, Microsoft's operating system for servers.

CHEAPER OPTION. Now, the same companies are looking into another market where Microsoft's wares aren't needed: so-called "server appliances." These are inexpensive server computers that are devoted to a single task, such as routing mail, and, as a result, don't require a full-blown Microsoft operating system. No Windows. And with price tags as low as $999, vs. $3,000-plus for a Windows-based server. "Appliances have changed the server landscape forever," says Stephen W. DeWitt, CEO of appliance upstart Cobalt Networks Inc. "The economics are just too powerful to ignore."

On Feb. 1, HP unveiled a server that runs Oracle's database software--with nary a trace of an operating system at all. And it plans to debut another three server appliances in the next few months. Compaq is considering a similar product. And almost all of the PC heavies are talking with Cobalt, Whistle Communications, and Encanto Networks to get in on the trend. One top PC maker--which asked not to be identified--is about to announce a deal to resell Encanto's $995 e.go web server, which enables small businesses to easily set up E-commerce Web sites.

VAST MARKET. Analysts think server appliances could grab a big chunk of server sales to corporations, institutions, and Net service providers. Dataquest Inc. figures the server-appliance market will grow from $500 million now to $13 billion by 2002, when it will represent 19% of the total server business.

Even if that number proves a bit optimistic, there's no doubt that Microsoft faces a new kind of challenge. If servers without operating systems are what customers are asking for, says Fred J. Oh, Acer America's director for product marketing, "there's nothing Microsoft or anyone else can do about it." But Microsoft is considering drastic measures: The giant is already tinkering with its own "embedded" version of Windows NT, a stripped-down product that could be priced to compete in the appliance market, say analysts.

For PC makers, appliances present a tantalizing opportunity. Says Acer's Oh: "We've always dreamt of the day when people wouldn't care about the operating system." For Microsoft, that's a nightmare as scary as anything going on in Washington.

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