Will XP help Microsoft?

As the IT industry waits in anticipation to see whether or not Windows XP will come to the rescue of anailing PC market, there is an almost equal amount of interest in how its reception will impact on Microsoft itself.

Grabbing the majority of desktops in its well-timed splash into the consumer PC market, Microsoft has had areasonably effortless trip to the top. However, although Microsoft has carved itself a prominent niche onthe desktop, it has also expanded its empire well beyond the realm of its origins.

The continually evolving beast that is Microsoft seems almost invincible, having adapted to numerous shiftsin the market since its inception. However, resentment in the market, cheaper alternatives and even its ownshadow could prove challenging for the software giant in the future.

The biggest threat to Microsoft could well be itself, according to a number of analysts. While Windows 95took the world by storm, with people prepared to queue up at midnight to grab the first copies, we're yet tosee a similar amount of interest generated by any other Microsoft OS release. Even XP, with its multimilliondollar promotional campaign has generated barely a blip on the screen at this stage.

Consumers are quite content with their Windows 95 or 98 editions sitting on their desktops, and combinedwith a tougher economic climate, haven't shown much interest in upgrading. Enterprises are following asimilar trend, according to Gartner, with around 20 to 30 per cent of enterprises not upgrading.

"Microsoft's next big challenge is to shepherd its huge 'legacy' installed base off Windows 9x over toWindows XP," said Natasha David, senior analyst, enterprise and Internet software at IDC.

"It is likely that 2000 will be remembered as the final year that Windows 9x client operating environmentswere actively promoted by the software giant, with one final, stopgap product pushed out the door calledWindows ME," she added.

Part of the upgrade problem for Microsoft is that users aren't finding any compelling reason to switch.

Matthew Boon, senior industry analyst, computers and peripherals with Gartner, believes there could be a lotof reasons for users to upgrade to XP, but that they weren't being relayed to the customer base.

"I think the trick is that Microsoft really has to convey those reasons very clearly rather than justoffering the operating system. If it wants XP to be successful, it has to focus on the real differences andreally push that out to the market," he said.

Gartner colleague, Greta James also notes that Microsoft is addressing the issue through its changes tolicensing.

"It is increasing pressure but is not communicating very effectively the reasons why enterprises should beupgrading, other than financial reasons," she said, adding that the company was upping the pressure onenterprises to upgrade in the next few months.

In regards to licensing, IDC's David believes that the changes may well be a tactical error for Microsoft,predicting that the "heavy-handed" programs may slow revenue growth.

"Early indications are that a good portion of Microsoft's customer base ? possibly larger than the 20 percent that Microsoft had expected to baulk ? is upset with the new licensing terms. If these customers remaindissatisfied with Microsoft's response to their concerns, they have the potential to hurt revenue by takingtheir business elsewhere," she said.

Another threat to Microsoft's desktop dominance is the potential demise of the PC as a platform. Withwireless and handheld devices becoming more and more of a commodity, many analysts agree that this may alsoimpact on Microsoft.

"There's a shift in the market to alternatives to the desktop and laptops, so there' a move towards mobiledevices. I think it's a little bit over-hyped somewhat, but I think there will be more devices whether theybe set top boxes, handhelds or mobile phones. However, the desktop will always be important," said JohnBrand, program director of e-business strategies at Meta Group.

Neil Dutton-Ward, research director for e-infrastructure at Ovum, notes that Microsoft has already counteredthis issue over the past couple of years.

"Over the past two years Microsoft has 'got serious' about developing platforms for games machines (Xbox),TV set-top boxes (Microsoft TV Platform), phones (Mobile Explorer and the Smartphone Platform 'Stinger') andPDAs (PocketPC)," he said.

"Earlier development efforts, such as the first versions of Windows CE and 'Embedded NT', were seen assideshows to the main Windows event and never pushed as strategic priorities. Now, it seems the companyrealises that the PC is not going to be the dominant device forever," he said.

Perhaps pre-empting the plateau of the PC, Microsoft has significantly ramped up its move into theenterprise.

"Microsoft is making a real concerted push to establish itself in the high end of town, and to be a reallyviable alternative to some of the mainstream Unix offerings that have traditionally held the market share inthe high end of the server market," Boon said.

"I think looking also at the workstation market, equally the company is establishing itself as more of abusiness platform at the higher end rather than just being seen as a consumer operating system," he added.

Is open source a real threat to Microsoft?Ask any open source devotee and you will get a resounding yes. Linux et al has certainly gained a passionatefollowing, to say the least.

However, while most analysts agree that the open source movement is unlikely to do any real damage to thesoftware giant, there is a general feeling that Microsoft should keep checking over its shoulder.

Neil Ward-Dutton, senior analyst with Ovum, believes that Linux is a "dead duck" on the desktop, and blamesa lack of applications as the reason why it won't become a significant force for 10 years, if at all.

However, Matthew Boon, senior industry analyst, computers and peripherals at Gartner, believes that the opensource threat is a very real one, albeit from a workstation perspective rather than a consumer one.

"We will see threats to Microsoft in the workstation side of its business, rather than the consumer PC side.

There's really no viable reason for consumers to have systems running Linux," he said.

Boon also added that Microsoft could be challenged if PC vendors in certain markets chose to adopt opensource operating systems instead of Windows.

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