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visualize a platypus

Why Microsoft doesn't rule the Net
Redmond's observers keep counting on the software
giant to become a Net company. What's wrong with that?

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By Mark Gimein

Oct. 1, 1999 | Three years ago, a senior executive involved in Microsoft's Internet operations was offered a job by America Online. He said no, and smiled to himself. "We all were so clueless," he says now, "I remember thinking to myself, [at Microsoft] I'm in the catbird seat, it's only a question of how to use it."

The former Microsoftian can tell this story without embarrassment because he was by no means alone in betting on the wrong horse. America Online then was in the middle of what looked like public relations armageddon as it earned the nickname America On Hold. Companies like Yahoo and Amazon were hardly blips on the screen to anyone but a few analysts. Though Netscape was still considered the Internet company, virtually everyone involved with the Internet at the time believed that if any company would dominate in the businesses that the Net was creating, it would be Microsoft.

Last week, Microsoft announced its latest Net strategy. The announcement of a new Microsoft strategy is a perennial ritual that lets Microsoft flex its muscles and explain how it will remedy its mistakes. This time, Microsoft announced a whole bevy of initiatives that together might be considered quite a big deal: the spinoff of its online travel agency, Expedia, into a separate public company; a new small business site called bCentral; plans to develop cheap new "Internet appliances" -- computers dedicated to Web access and e-mail and running the Windows CE operating system; a revamp of the keystone MSN.com site. Yet what it all added up to for most observers was a collective yawn of "we've been here before."

The biggest news out of Microsoft's press and analyst conference, in fact, was an off-hand remark by Microsoft president Steve Ballmer that technology stocks -- including Microsoft's own -- were overvalued. That got everyone's attention and sent Microsoft's stock down by almost $5 a share in a few hours.

Watching Microsoft in the 1990s is what watching the Kremlin used to be during the Cold War: an exercise in guessing at the meaning of opaque official communiqués and watching carefully for any changes in the seating plan of the Politburo. (Hmm, Microsoft wise man Nathan Myrhvold seems to be spending a lot of time on his fossil collection ...)

Rarely, however, has anyone tried to answer why Microsoft's Net strategy is so regularly disappointing. The answer has a lot less to do with strategic missteps than with some big facts about Microsoft. First, it's not a Net company in the way that a lot of commentators seem to think it is. Second, unlike many of its new competitors, Microsoft can afford to make mistakes.

The easiest way to sum up the first of these points is that while Microsoft watchers want Microsoft to think of itself as a "Net company," it's not, and doesn't want to be one.

Next page | Think of Microsoft as a platypus



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