Ganging Up to Compete with Microsoft

Suddenly, there's a rush among rivals to form alliances

No sooner had Bill Gates arrived at the Las Vegas Convention Center for the Comdex trade show on Nov. 12, than he made a beeline for the Nokia booth. His quest: to examine the new 9290 Communicator, a combination cell phone and personal organizer. This was no friendly visit from a phone buyer, though. Microsoft Corp. has its eyes on the emerging cell-phone software market, putting mobile-phone leader Nokia Corp. increasingly in the Microsoft chairman's crosshairs.

That explains why Nokia helped launch a new mobile-phone consortium that day that could one day vex Microsoft. The consortium is trying to set technical standards for next-generation mobile phones and services that are independent of Microsoft's technology.

"A BIG THREAT." This group is just one of several alliances that have cropped up in recent weeks as companies have become increasingly worried about Microsoft's clout. They're banding together to prevent the software giant from dominating everything from mobile computing to a new generation of Web services. Their strategy: to push for industry standards on the Internet, not Microsoft's Windows. "We know that Microsoft is a big threat," says Sony President Kunitake Ando. "If everybody goes toward Windows and Microsoft technology, it's not so good."

Indeed, Microsoft is plowing into an array of new markets. It competes with cell-phone makers Nokia and Motorola Inc. with its new technology for Web cell phones. It's taking on Sony and Nintendo Co. with its Xbox video game console. And its Passport Web site authentication service, with 200 million accounts signed up, makes it a potential middleman between Web merchants and their consumers.

Microsoft's antitrust settlement with the Justice Dept. and nine states in November does little to restrain it from using its Windows monopoly to gain ground in new markets. And on Nov. 20, Microsoft eliminated another potential constraint by settling consumer class actions, alleging it overcharged for Windows. The company agreed to spend $1.1 billion to outfit poor schools with PCs.

With Microsoft unchained, the prospect of it becoming a powerful middleman on the Web helped spawn a new anti-Microsoft initiative, the Liberty Alliance. The 34-company group launched Sept. 26 with the promise of developing an alternative to Microsoft's Passport service. "It feels like they're creeping into a number of our businesses. We're suspicious," says one telecom exec. Other members include General Motors, United Air Lines, and Fidelity Investments.

Several of the companies that have joined the alliances are quick to point out that they're not on a mission against Microsoft. "The primary goal is to have Microsoft involved, as well as AOL and Yahoo! and everyone else," says Liberty Alliance member Eric C. Dean, chief information officer of United Airlines Inc.

Microsoft says companies have nothing to fear. Although the company has its proprietary Windows operating system, it has increasingly embraced industry software standards for its Web products. "We have been talking about open standards longer than any one of these companies," says Steve Guggenheimer, Microsoft's senior director of business management. Its newest rivals feel they can't afford to wait and see if Microsoft is true to its word. So they're taking matters into their own hands. If history is any guide, those hands will be full.

By Jay Greene in Seattle, with Stephen Baker in Barcelona, and Peter Burrows in San Mateo

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