Where Is Microsoft Going?

Late last month the computer industry trade press played up yet another delay in Windows 2000 after word leaked out of Microsoft that Beta 3 had again slipped. Rumors are suggesting that the product won’t be released until early in 2000. Not that this is a huge surprise.

There are some users who honestly need some of the new capabilities in Windows 2000, but they’re apparently a small enough minority to not slow Window NT or Microsoft down.

Two days after the stories about the latest delay surfaced, Microsoft announced its latest financial results. For the company’s second quarter of fiscal 1999, which ended on December 31, Microsoft reported a 74 percent surge in net income.

During the quarter, Microsoft had a boost in revenue from $3.59 billion for the same period the year before to $4.94 billion, an increase of 38 percent. Yet the company’s operating expenses only increased by $252 million, or about 13 percent, over the previous period’s $1.97 billion. That’s a growth curve any company would like to be on.

Microsoft says one of its big growth items for the period was Windows NT Workstation 4.0, which saw a significant boost over the prior year’s sales, primarily through OEMs. Also cited as growing strongly, up 27 percent over last year’s results, are applications and tools. Finally, seasonal sales of games and other consumer products also helped boost the quarter appreciably. In other words, most of Microsoft’s businesses are growing strongly.

As has been the case for the past several quarters, Microsoft downplayed the results, noting that strong growth is unlikely to continue. Microsoft expects concern over the 2000 date change to cause a decrease in new software purchases during 1999, although that has yet to show any real effect on the company’s financial performance.

One key point: Windows 2000 delays are not having a significant impact on Microsoft’s financial results. That’s not common. In fact, delays in delivering new hardware platforms hurt most of IBM’s computer lines at one time or another.

Also, Microsoft doesn’t seem to be losing credibility among corporate users, even though it deserves to. The nagging problems that NT 4.0 has, particularly the product’s limited scalability and inability to operate continuously without rebooting, have not gone away. But Add-on Packs, Option Packs and Service Packs have, for the most part, resolved other problems or requirements that have come along.

Given Microsoft’s history of announcing products and initiatives far in advance of its ability to deliver a working product, and its history of missing self-imposed deadlines, the Windows 2000 delays are nothing out of the ordinary. That’s not to say they’re acceptable, just that the company is living up to the expectation level customers already have.

Of far more serious concern is where Microsoft is going with its operating systems. How will Microsoft address future changes to its operating systems? Will corporate users continue to be accepting of major operating system upgrades that take three or more years to complete? Will the next upgrade to Windows 2000 take another three years?

Microsoft may have created a monster that is becoming exponentially more difficult to maintain and upgrade. And its philosophy of a single code base and a single kernel for all versions of Windows NT -- supporting everything from laptops to multi-CPU SMP systems – just may be unrealistic.

If the difficult of getting Windows 2000 out the door is any indication, these concerns are justified. Will -- or can -- Microsoft overcome these problems? Let’s hope so, for its sake and for ours.