Microsoft's Enterprising Endeavor

Armed with a series of product upgrades, Redmond plans to go mano-a-mano with IBM in large-business computing

Ever since the dawn of the info era more than 50 years ago, IBM (IBM) has been the 500-pound gorilla in large-business computing -- supplying technology and services to coordinate communications, process transactions, and manage information. Well, another big gorilla just charged into IBM's jungle. Microsoft (MSFT) Chief Executive Steven Ballmer on Mar. 16 laid out his vision of an expanded role for his company in the $1 trillion business-computing market. Microsoft, he says, is the enabler of "people-ready" business.

Ballmer's pronouncements were reminiscent of Yankee baseball slugger Babe Ruth standing in the batter's box and pointing to the place in center field where he planned to hit a home run. But while Ballmer may ultimately be right about Microsoft becoming a giant in the enterprise-software market, it won't come as quickly as the blast Ruth delivered that fabled day. In fact, given IBM's strengths in corporate computing, this stands to be a long, arduous battle with no pull-away winner.

Ballmer's pitch is simple. Microsoft's strength lies in its two monopolies -- the Windows operating system and the Office suite of productivity and collaboration applications. Microsoft argues that by integrating those user-oriented software packages thoroughly with back-end programs for data storage, communications, and business-process management, it puts companies' ordinary employees, rather than the geeks, at the center of the computing world. "Our innovations facilitate the power of people" in businesses, he said.


  In a sense, Ballmer's speech was the opening salvo in the marketing of a string of product upgrades the company plans for the next 12 months. These include the long-awaited overhaul of the Windows operating system, known as Vista, and a new version of Office.

In both cases, the company has fashioned "enterprise" versions of the products with additional security and collaboration-enabling features for sale to large businesses. Microsoft has spent $20 billion over the past three years on these upgrades, and Ballmer says it will spend $500 million over the next year marketing them to corporations. "We're unlocking the next wave of growth for Microsoft," Ballmer predicted during a press conference after his speech.

It was at that press event that Ballmer drew a bead on IBM. He said Big Blue is all about services, while Microsoft is focused almost exclusively on software. He noted that IBM has just come out with a new advertising campaign. "Their pitch is to let IBM help your company with its innovation. Ours is to empower your people to innovate. The two approaches are striking in their contrast," he said.


  But IBM, with a $90 billion-a-year business of selling technology to businesses, doesn't intimidate easily. Ken Bisconti, vice-president for IBM Lotus Workplace products, calls Ballmer's speech a "thinly-veiled promotion" for the upcoming Windows and Office launches.

"Windows and Office attempt to prolong Microsoft's pre-Internet, proprietary, one-size-fits-all computing model," Bisconti says. "We embrace open-technology standards, which give customers the ability to mix and match the technology they use." He also points out that while IBM offers a vast array of tech services, its $15.8 billion-a-year software business is second in size only to Microsoft's.

Indeed, while open-source software has mounted a serious challenge to Microsoft, IBM is the only company that can offer a wide array of software for large corporations that runs on both the server and the desktop. Its IBM Workplace products, launched two years ago, provide Internet-based applications designed for specific jobs in corporations -- from call-center operator to bank employee. Revenues for the Lotus unit, which includes most of the Workplace products, increased 10% last year.


 The reaction from analysts to Ballmer's speech was generally positive. "I think it's smart," says Jim Murphy, enterprise software research director for AMR Research. "Will it move the needle immediately? No. But over the long term, it might move things."

Murphy believes Ballmer's speech was largely defensive. When software companies upgrade their products, many customers step back and decide whether to stick with that supplier or shift to another one. "This may be more about defending their space and getting people to upgrade," he says.

So far, the Linux desktop operating system and Open Office, an open-source desktop productivity package, haven't gained much ground in corporations. The open-source folks aren't rushing anything out to take on Vista, but they argue that, over the long haul, their approach will win over more and more corporations. Red Hat (RHAT), the leading distributor of Linux, has had tremendous success selling it for corporate servers and expects eventually they will have equal success with Linux as a desktop-computer program.


  "We don't let our marketing department tell our engineers which features to create so that they have something new they can package up and sell," says Gerry Riveros, who's responsible for desktop-product management at Red Hat. "Instead, our customers and our partners in the open-source community tell us which are the best features to include, and we work on innovation collectively."

The new features that Ballmer showed off during his speech seemed useful. He showed how, using Microsoft's integrated applications, people can draw capabilities from a number of applications without even paying attention to which one they're using at any given time. That means you could, for example, get a PowerPoint attachment in an e-mail and edit it right in Outlook.

Some of Microsoft's customers were on hand to cheer on the initiative. Tim Huval, chief information officer for Bank of America's (BAC) Global Wealth & Investment Management group, said after the speech that he's using Microsoft's SharePoint server technology to aggregate information from many sources about a particular client. That way, BofA advisers can survey all of their banking and investing options and provide better advice. "We want to get to the ultimate client experience by enabling our associates," he says.


  But even a loyal Microsoft customer like Huval says he doesn't want to become too dependent on Microsoft -- or any other tech supplier. "We don't buy products and services that inhibit our ability to integrate with other technologies."

That's a big point of contention between IBM and Microsoft. IBM's Bisconti says Microsoft's technology isn't designed to work well with products from other vendors. "They don't have integration with the real world, which is based on heterogeneity," he says.

Jeff Raikes, president of Microsoft's Business division, responds that Microsoft doesn't fence others out -- it just provides additional capabilities by integrating its products. "A combination of Microsoft technologies will always have more impact," he says.

Those are the choices corporations face. Do they settle primarily on one company to provide most of their core software, or do they choose from a variety of companies? Their decisions will determine which gorilla rules the corporate computing jungle.

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