E Commerce May Be One Race Microsoft Can't Win

It's trailing badly. Will it come from behind?

When Microsoft stakes out new territory, the industry giant makes its intentions clear. On Mar. 4, Microsoft Corp. packed close to 200 analysts, investors, and reporters into the Argent Hotel in San Francisco for a three-hour pep rally to convey one message: The company aims to become a kingpin in electronic commerce. "This is a slam dunk for us," declared Chairman and CEO William H. Gates III.

That depends on how you're keeping score. For all the fanfare, most of Microsoft's new wares merely match those introduced months or even years ago by competitors. Comparative shopping, for instance, which allows Netizens to check prices and products from a variety of vendors in one place, was introduced by Yahoo! Inc. in 1997. Microsoft's version of the service won't be out until late this year.

Indeed, none of Microsoft's new E-commerce initiatives will be available to customers before then. "Competitors should say, `Thank you very much,"' says Bill Burnham, E-commerce analyst at Credit Suisse First Boston. "Even if they just get up and come to work over the next 12 months, they will stay well ahead of Microsoft's vision."

Clearly, Microsoft has a long way to go before it can claim the lead in E-commerce software--programs used to manage online shopping and other transactions. Ask customers such as Matthew Hyde, vice-president for online sales at REI Inc., a seller of outdoor gear. A year ago, when he was shopping for software to run his company's Web store, Microsoft was so far behind that he questioned its commitment to the new market and chose IBM's Net.Commerce software instead. "I made the bet for the long haul, and Microsoft's offerings aren't compelling enough for me to switch," Hyde adds.

Of course, Microsoft has been in this come-from-behind situation before--most famously when it saw Netscape Communications Corp. and others taking the lead in Internet technology. Microsoft leveraged its assets--mainly control over the Windows operating system--to make up for lost time. Virtually overnight, the company watched its share of the browser market go from the single digits to more than 50% today. Netscape, which had controlled close to 80% of the market, was nearly squashed in the process.

Microsoft wants to do the same to the likes of Yahoo! and America Online Inc.--using a similar strategy. The company's game plan: beef up the Microsoft Network (MSN) into a more potent Web portal by adding an unparalleled menu of software products and services. Among other things, Microsoft will update its low-cost commerce software to enable online merchants to create more personalized Web stores. The key part of its initiative is BizTalk, a business-to-business tool that lets companies operating on different systems do business with one another over the Net even if they have never done business together before.

"A BIG FIGHT." Microsoft believes that by offering the soup-to-nuts E-commerce system, it will leapfrog the likes of Netscape/America Online. The reason? By controlling the operating system, software, services, and portal, Microsoft can create seamless links between the different technologies and offer the whole enchilada at a low price. "No one has the integration that we will have," says Rich Tong, a Microsoft vice-president. That, says Paul Moulton, Costco Wholesale senior vice-president for information systems, is "worth waiting for."

Microsoft also would like to set standards for E-commerce software with its new offerings. But that effort is sure to be challenged by companies that don't want to see its power extended into a new arena. "There's going to be a big fight on this," says Michael Putnam, an analyst at Forrester Research Inc.

To be sure, when Microsoft stakes out a market, competitors pay careful attention. "We have a great deal of respect for these guys," says Timothy A. Koogle, chairman and CEO of Yahoo! Up to now, Microsoft's slow start has let newcomers, such as BroadVision, Bluestone, and Ariba grab share and land heavyweight customers such as Staples and Dreyfus. Then again, Netscape once had the browser market all sewn up.

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