- The Washington Times - Wednesday, May 10, 2000

Microsoft Corp. is widely expected to retain its dominance in markets where it has a foothold, even as it fights a federal plan to split the company in two.

The Redmond, Wash., software maker's promoters and detractors alike said Microsoft Windows and Office are likely to continue to be very popular.

At the same time, analysts don't expect the company to gain ground on competitors in markets where it already lags behind the leaders as the Justice Department's antitrust trial against Microsoft progresses.

"There really isn't any material loss of market share yet. But there may be impending loss," said Rob Enderle, computer industry analyst with Cambridge, Mass.-based Giga Information Systems.

Microsoft will file its response late today to the proposal to break it apart. The Justice Department and 17 of the 19 states that sued Microsoft filed their plan April 28.

Prosecutors have proposed breaking Microsoft in two. One company would develop and market the Windows operating system, and the other would develop Microsoft's other software and Internet holdings, including the Microsoft Office suite of programs.

Competitors in the market for operating systems and software such as the popular Office application haven't caught up to Microsoft.

Nor has Microsoft caught up with companies marketing Internet-related products like Web-enabled cell phones.

By the end of the first quarter, Microsoft's Office suite of programs had an 87 percent share of the market for bundled, or prepackaged, office applications, according to Reston, Va.-based researcher PC Data Inc. Corel Corp.'s WordPerfect Office was a distant second with 12 percent of the market.

Mr. Enderle said two emerging software competitors include Silicon Valley start-up company ThinkFree.com, whose office suite includes a word processor, spreadsheet and presentation graphics program, and StarOffice, a free application available on the Internet from Sun Microsystems Inc.

Microsoft's hold on the market for operating systems remains just as tight.

PC Data estimates Microsoft's Windows operating system, the program that runs a computer, has 72 percent of the market for the software.

Linux, one of the few competing operating systems, is making a run at Microsoft in a segment of the market.

Nearly all of the Linux operating systems on the market are in servers the large computers that run Web sites and computer networks rather than in personal computers, the market Microsoft controls.

Microsoft led the industry with 31 percent of the market for server operating systems at the end of 1999, compared with Linux's 24 percent share, according to International Data Corp., a technology industry researcher in Framingham, Mass.

But Linux is growing in the server market. It had a 15 percent share in 1998 and a 6 percent share in 1997.

"We feel we are being successful in an area where Microsoft isn't dominant," said Bob Young, chairman and co-founder of Linux distributor Red Hat Inc., in Research Triangle Park, N.C.

Internet servers isn't the only area where Microsoft is without a monopoly.

Consumers are increasingly using cell phones and hand-held devices like personal digital assistants to perform the functions personal computers have been used for like surfing the Web or checking e-mail.

Some expect the portable units to replace the personal, or desktop, computer, making Microsoft's hold of the operating system market for computers meaningless.

"If we do our job properly, you'll see the desktop become less important as a percentage of the overall market," Mr. Young said. "I think most of the growth in the industry will be in the areas other than the PC."

In that sense, Microsoft is racing to catch up to the market, rather than watching the market race to catch up to it, and Microsoft's secondary status is unlikely to change anytime soon.

"Regardless of the trial, the non-PC market represents a threat to Microsoft," said Neal MacDonald, vice president and research director at Stamford, Conn., technology researcher Gartner Group.

Like desktop computers, cell phones and handheld devices require operating systems. By the end of 2002, Microsoft will have a 25 percent share of the market for operating systems for handheld devices, the Gartner Group predicts. But Santa Clara, Calif.-based Palm Inc. will have a 40 percent share of that market by then.

Microsoft is competing in the handheld product line. It introduced its version of the personal digital assistant called the Pocket PC last month to go head to head with the popular Palm Pilot.

"I think Microsoft has admitted, in some ways, they made some mistakes. I think they acknowledged it. But with the Pocket PC, I also think they remedied the mistakes," Microsoft spokeswoman Cherie Hurdstrom said.

"Microsoft would like to leverage its desktop presence to get into the new markets," Mr. MacDonald said. "I think they will have limited success and then blame it on the government."

Microsoft closed yesterday at $67.81, down $2 a share for the day on the Nasdaq Composite Index.

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