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Austin, TX (Nov. 18, 1998) -- Microsoft (Nasdaq: MSFT) doesn't quite have the track record people seem to think. Until the early 1990s, Microsoft, Intel, and IBM were one big happy family under the umbrella of IBM's monopoly. Since then, Microsoft has been on a rampage, consuming adjacent industries and becoming the single most highly priced company in the United States in a little under a decade since first going public. The problem is, this growth is simply not sustainable.
Microsoft competes directly with its own customers. Pepsi tried that for a while by purchasing restaurant chains and making them Pepsi-only. All of the restaurants Pepsi didn't own immediately switched over to Coke, since buying Pepsi was funding the expansion of their competition. It was a classic dumb move, and Pepsi has now gotten the heck out of the restaurant business.
In Microsoft's case, competing with its customers has become part of its core business model, due to its internal lack of innovation. Lack of innovation was a good thing when backwards compatibility and standardization were the dominant forces driving the industry, but now it's a real handicap to Microsoft, forcing it to steal entire products from competitors in place of real innovation. Taking the web browser away from Netscape is only the most recent example. Before that Microsoft crushed dominant software like Lotus 1-2-3, WordPerfect, DesqView, QEMM, Stacker, Borland "Turbo" compilers, and dozens of others.
Today, Microsoft continues to fight on all fronts. The second largest pure software company is Oracle (Nasdaq: ORCL), and of course Microsoft is trying to muscle in on its territory with the Access database. It purposely broke compatibility for both RealAudio and QuickTime in exactly the same way, blaming both for "having bugs," which were revealed by changes that Microsoft made. (Memo to Microsoft: In the software industry, if your change broke it, it's your bug.) Microsoft has been called a "black widow spider" because it eats its mates. A partnership with Microsoft is corporate suicide unless you're just too small to interest them.
Microsoft insists that it wins on merit every time. Its argument that "nobody, anywhere, in any country can successfully compete with us because we're just so much better than the rest of the human race in anything we ever attempt" just isn't that convincing. It's darn hard for an application software company to compete with the company that writes the operating system. Imagine if Standard Oil had wanted to manufacture its own cars. Could Ford have survived?
These days, even venture capital is drying up for any new projects that might, conceivably, someday compete with Microsoft. The standard joke in the industry is that Windows 98 had nothing new because Apple hadn't done any innovating lately. But there wasn't a whole lot going on on the PC side either, despite the explosive growth of the Internet. The more Microsoft pushes its competition into the background, the more brittle its hold on power becomes. When nothing runs on Microsoft systems except Microsoft software, Microsoft will have become IBM.
As a result of its ravenous arrogance, Microsoft is starting to have public relations problems. There are thousands of true grassroots anti-Microsoft sites on the Web, and large corporations that have nothing to do with software are starting to plan for Microsoft's encroachment into their businesses (a great article in the NY Times -- registration is free). Gates himself regularly talks about expanding out of Microsoft's niche.
But Microsoft's expansions outside of its core software business have not been successful to date. MSNBC is no match for CNN. The Microsoft Network has been brushed aside by AOL and thousands of smaller Internet service providers. How is the Palm PC doing against the Palm Pilot? Read for yourself.
To combat the growing disdain for it in the industry, Microsoft tried to launch its own fake grassroots support campaign. Dubbed the "astroturf" campaign, it was exposed by The Los Angeles Times, and at first denied, then later defended by Microsoft.
Microsoft's legendary marketing department is spread very thin these days. Microsoft now has four separate public relations agencies working for it, which are producing anything but a unified front to the world. With a half-dozen seperate legal actions and investigations pending against it, corporate mistrust for Microsoft growing, and real grassroots anti-Microsoft groups springing up by the hundreds on the Internet, the company's PR department has its hands full.
Tomorrow, I'll talk about the industry's search for alternatives to Microsoft. The free market is capable of working around almost anything, and strangely enough, the word "free" comes up more than once in tomorrow's article. Until then,
Order your copy of Rule
Breakers, Rule Makers in advance.
Day Month Year History C-K +0.98% 6.79% 18.70% 18.70% S&P: +0.45% 4.17% 13.77% 13.77% NASDAQ: +1.01% 7.12% 13.87% 13.87% Cash-King Stocks Rec'd # Security In At Now Change 2/3/98 24 Microsoft 78.27 109.75 40.22% 2/3/98 22 Pfizer 82.30 111.38 35.33% 5/1/98 37 Gap Inc. 51.09 68.00 33.10% 2/13/98 22 Intel 84.67 109.88 29.76% 6/23/98 34 Cisco Syst 58.41 72.88 24.76% 8/21/98 22 Schering-P 95.99 103.69 8.02% 2/27/98 27 Coca-Cola 69.11 70.94 2.65% 2/6/98 56 T. Rowe Pr 33.67 34.13 1.34% 5/26/98 18 AmExpress 104.07 102.13 -1.87% Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Eastman Ko 63.15 76.06 20.45% 3/12/98 20 Exxon 64.34 70.69 9.87% 3/12/98 17 General Mo 72.41 72.88 0.65% 3/12/98 15 Chevron 83.34 80.56 -3.34% Cash-King Stocks Rec'd # Security In At Value Change 2/3/98 24 Microsoft 1878.45 2634.00 $755.55 2/3/98 22 Pfizer 1810.58 2450.25 $639.67 5/1/98 37 Gap Inc. 1890.33 2516.00 $625.67 2/13/98 22 Intel 1862.83 2417.25 $554.42 6/23/98 34 Cisco Syst 1985.95 2477.75 $491.80 8/21/98 22 Schering-P 2111.7 2281.13 $169.43 2/27/98 27 Coca-Cola 1865.89 1915.31 $49.42 2/6/98 56 T. Rowe Pr 1885.70 1911.00 $25.30 5/26/98 18 AmExpress 1873.20 1838.25 -$34.95 Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Eastman Ko 1262.95 1521.25 $258.30 3/12/98 20 Exxon 1286.70 1413.75 $127.05 3/12/98 17 General Mo 1230.89 1238.88 $7.98 3/12/98 15 Chevron 1250.14 1208.44 -$41.70 CASH $120.62 TOTAL $25943.87 *Please note: On 8/4/98 $2,000 cash was added to the
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