The Road Ahead of Microsoft

In my last column, I talked about some of the compelling reasons Microsoft Corp. has entered the Web services space. Now I’d like to talk about some of the difficulties I suspect Microsoft will face as it attempts to execute on its Web services strategy.

In this regard, the software giant’s epic struggle against the United States Department of Justice – which commenced in 1994, went into a remission of sorts for about two years, and began again in earnest in 1997 – presents perhaps the single greatest obstacle to its dominance of Web services.

That being said, Microsoft’s wrangling with the DOJ might not affect the overall efficacy of its Web services strategy in any immediately obvious way. It’s not clear, for example, that the combined scrutiny of the DOJ and of the state attorneys general has helped to curb Microsoft or to make it any more circumspect in its business practices. Redmond’s .NET initiative is as ambitious as they come, and – as if that’s not enough – the software giant is now preparing to take the wraps off of a new operating system, Windows XP, which incorporates robust media, instant messaging and digital photo processing technologies. Windows XP also provides integrated support for the software giant’s now-notorious Passport universal identity service.

Paradoxically, Redmond’s antagonistic relationship with the DOJ has done little to rein in even the most overtly anti-competitive aspects of its behavior. In July 2001, for example, the Wall Street Journal published an account of Microsoft’s efforts to effectively hi-jack a digital photo-processing Web services standard that it had developed in conjunction with Eastman Kodak. The standard, which is to be fully supported in Windows XP, will give customers the ability to choose from among a variety of third-party photo-processing vendors when they wants to touch up their digital photographs. As first implemented by Microsoft in early versions of Windows XP, however, this facility attempted to steer users toward photo processing vendors that were willing to pay the software giant a fee for referred customers. Microsoft eventually relented and opened the standard back up, but not before Kodak raised a hue and a cry – and brought its plight to the attention of influential N.Y. senator Charles Schumer. Does this sound like the behavior of a company that’s been cowed by the grave implications of antitrust?

Nevertheless, the taint of antitrust could affect the folks in Redmond in other, perhaps less perceptible ways. First of all, some of the facts that have emerged from U.S. vs. Microsoft have registered among even non-tech-savvy consumers. It bears noting that the facts in question – which concern the illegal use of monopoly power to stifle competition – aren’t terribly flattering to Microsoft. And it’s in this respect, of course, that the software giant’s struggle against the government most seriously affects its prospects for dominance in the Web services space – particularly insofar as its Passport Web service is concerned. After all, Microsoft’s Web services gambit is as much a public relations play for consumer confidence and mindshare as it is a strategy to counter its competitors and assert the software giant’s dominance in a new space. In fact, Microsoft’s Web services strategy is largely concerned with extending the reach of the software giant to assimilate even the most decidedly non-tech-savvy of consumers: The proverbial Jane C. User.

This is an ambitious gambit for any vendor to play – especially when it’s been slapped (by no less of an authority than a federal district court) with the label of errant monopolist. In the early going, Microsoft appeared to hold its own in the PR spin war, however. For example, in a June, 2000 Gallup poll that was taken shortly after Judge Thomas Penfield Jackson found that Microsoft had illegally abused its monopoly power and subsequently ordered that the company be broken up, 65 percent of respondents indicated that they had a favorable impression of the software giant. Slightly more than half – 54 percent – of the general public (and 60 percent of self-described “computer users”) said that they opposed a break-up of Microsoft. Finally, 69 percent responded that they had a favorable impression of Microsoft chief software architect Bill Gates.

It’s important to note, however, that Jane C. User’s relationship to Microsoft – if it exists at all – is at present largely confined to the operating system that she runs on her computer; to the desktop productivity applications that she uses at work (and possibly at home); to the browser that she uses to surf the Web; and, less likely, to the service provider that she uses to connect to the Internet. But Microsoft wants to change all of that. It wants to convince Jane C. User to adopt its Passport service to keep track of her user IDs, her passwords, and her credit card, shipping and billing information – all of which it proposes to store on its own servers, by the way. Microsoft hopes that Jane C. User will trust it to do so, and – as far as it’s concerned – it doesn’t see why this should be a problem.

But perhaps Jane C. User will think it’s a problem. After all, she’s probably aware – if only vaguely – of the unflattering things that were said about Microsoft in the aftermath of Judge Jackson’s (now infamous) decision to break up the software giant. She might even be aware of the storm of controversy that the software giant’s Passport Web service has to date attracted in both the technical and in the mainstream presses. Perhaps she’s even taken note of Microsoft’s suggestive slide in Fortune’s 2001 survey of “America’s Most Admired Companies” – from second (behind only General Electric Co.) to fifth. After all, the software giant had consistently placed among the top three most admired American companies for the last several years.

This, then, is the opportunity for which the extant members of the erstwhile NOIS bloc, the once-redoubtable Gang of Four – viz., Oracle Corp., IBM Corp. and Sun Microsystems Inc. (sans Internet pioneer-cum-America Online Inc. subsidiary Netscape Communications Corp.) – have been waiting. Outside of IBM, which has a veritable cash cow, not to mention a prime time Web services player, in its WebSphere Web application server, Sun and Oracle have scrambled to concoct a cogent Web services strategy in response to Microsoft’s far-reaching, and totalizing, .NET initiative. Their efforts to date – which have largely centered around the Java 2 Enterprise Edition initiative – haven’t exactly taken off like wildfire, however.

With Passport as originally conceived, Redmond proposed to take on Web services in precisely the same manner in which it traditionally took on operating system and application design – i.e., as a proprietary enterprise. Because of this, Oracle, Sun, and other Microsoft competitors were presented with a unique opportunity: Why not create a competing universal identity system based (largely) on open standards? To which solution would Jane C. User be more likely to entrust her credit card information – an open, federated system sponsored by a consortium of industry leaders…or a service operated by a once-convicted (and twice accused) errant monopolist that’s demonstrated a repeated willingness to abuse its power to stifle competition?

In late September, Oracle, Sun and about 30 others did just that, introducing an initiative – dubbed the Liberty Alliance – the goal of which is to create an open, universal identity system for Web services. About a week earlier, Microsoft – which had obviously gotten wind of Sun’s efforts – moved to stave off any potential impact of the Liberty Alliance by announcing plans to open up Passport. The software giant would later argue that the very existence of an initiative such as Liberty Alliance amounts to a validation of its Passport solution.

But this is bald-faced hypocrisy at its very worst. As a matter of fact, Microsoft’s move to open up Passport amounts to nothing less than a ringing endorsement of the Liberty Alliance, or, at least, to a validation of the strategies – openness and industry-wide cooperation – on which it’s based.

The Liberty Alliance – which is merely a code-name for an-as-yet-undeveloped universal identity system – is months away from realization, however. And in Passport, Microsoft has a fully functional universal identity system that’s ready to go right now – the software giant is rumored to have already signed up more than 150,000 Passport users – and which will be installed by default with Windows XP. But that’s not really the point. If nothing else, the Liberty Alliance will force Microsoft to make good on its promise to open up Passport – which should help to quell the concerns of privacy advocates and of would-be government regulators.

More than that, however, an initiative such as the Liberty Alliance offers an indication of how would-be competitors can counter Microsoft in the Web services space. The software giant’s gut instinct when entering a competitive situation is to look for the proprietary hook – and it’s precisely this proprietary hook on which Microsoft could be hung out to dry. Redmond acknowledged as much when it proactively moved to open up Passport in late September.