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Friday, 14 January, 2000, 10:34 GMT
The software superpower

Microsoft flags

Microsoft is the world's largest software company. But unlike the giants of other industries, this corporation has managed to keep its competitive edge, regularly beating competitors and exceeding the profit predictions of market analysts.

Microsoft in numbers
Microsoft shareholders, meanwhile, quietly reap the benefits as the company keeps on delivering soaring dividends.

The technology sector is notorious for its company churn: Yesterday's winners are tomorrow's losers.
Microsoft is the exception.
So why is the company so successful?

There are three reasons, and they can all be traced back to the company's chairman, Bill Gates, and the early years of Microsoft.

  • Operating System
    The company's biggest asset is its near-monopoly over the Operating Systems installed on the world's computers. When IBM introduced its first personal computer in 1981 and Microsoft supplied it with its Disk Operating System (MS-DOS), Bill Gates managed to keep the rights to the software. Since then the company can sell both the operating system and has an in-built advantage when customising application software to run on it as well.

  • Bill Gates The man in charge of a computer near you
  • Liberal licencing
    Microsoft's decision to licence MS-DOS cheaply to numerous PC manufacturers was crucial to its success. The fierce competition between the makers of cloned IBM computers drove down prices and attracted customers.

    Microsoft's main competitor, Apple, had a superior operating system but refused to hand out licences. As a result Apple computers were expensive while cheap MS-DOS computers reached a mass market.

  • Paranoia
    Microsoft lives and breathes paranoia, say numerous witnesses familiar with the company. Hardly any industry is more dynamic than the computer and software sector. Somewhere out there could be the next Bill Gates, fine-tuning a better operating system or "killer application" that could end Microsoft's control of the market.

    To counter this threat, innovation has been the leitmotif of Microsoft's corporate philosophy. Products have been constantly improved to outsmart rivals and those that could not be outsmarted have been bought up.

    In the beginning...

    Microsoft's founders were present at the birth of personal computing in 1975.

  • Microsoft and its competition
    It was the year when MITS, a company from Albuquerque, New Mexico, produced the world's first commercial minicomputer, the Altair 8800. Bill Gates and his friend and partner Paul Allen developed an interpreter of the computer language Basic to run on the machine. Basic soon became standard for the majority of small computers available in the 1970s.

    One of Microsoft's customers was Apple, which bought 'Applesoft Basic' for a flat fee of $21,000. Apple went on to sell millions of computers supplied with Basic, ultimately earning the software authors two cents per copy sold.

    William H. Gates III would not make this mistake again.

    In 1981 came the big break. IBM began to ship personal computers running on MS-DOS, while Microsoft retained the right to licence the operating software.

    At that point, Microsoft had grown from a micro-firm with three employees (Gates, Allen and Ric Weiland) and revenues of $16,500 to a small business with 128 employees and a turnover of $16m.


    The rest is computer history. While Apple's Macintosh machines initially surpassed anything its competitors produced - both in functionality and ease-of-use - Microsoft began to grab an ever larger share of the software market.

    Some 22 years after Paul Allen and Bill Gates got first excited over the Altair 8800 - a 0.5 MHz computer with 256 bytes RAM - Microsoft has turned into a software superpower. The company controls around 90% of the market for computer operating systems, has a stock market value of $354bn and employs more than 28,000 people.

    Microsoft shares trade at dizzying heights. In July 1992 one Microsoft share could be bought for $8.66. If investors wanted to buy one this week, they had to fork out more than $155.

    Mr Gates is now the world's richest man. Last year he was valued at $58bn and every time the price of Microsoft shares rise, he gets even richer.

    To many, Mr Gate's success has made him a hero. To others he is the devil incarnate of the computer world, ready to pounce on any opponent that might challenge Microsoft's supremacy.

    Browser wars

    One of those questioning Microsoft's motives is the United States government. Investigations into the company's behaviour began as far back as 1989, but only in October 1997 did the Department of Justice file a law suit against Microsoft.

    The Internet is at the heart of the matter. At first Microsoft failed to realise the Web's potential. But once Bill Gates had recognised his mistake, he moved quickly - and his critics allege that he played dirty.

    A Federal Court in Washington is currently hearing evidence in the anti-trust case over whether Microsoft illegally tried to divide the browser market and force rival Netscape out of business.

    Win 98 Windows 98, Microsoft's latest operating system for home computers
    The court's proceedings, though, have failed to make any impact on Microsoft's earnings.

    The company's software business goes from strength to strength. Applications like office suites and server software rival the sales of its Windows and NT operating systems. Microsoft, meanwhile, tries to break out of its core business.

    Mr Gates hopes that Windows will soon be everywhere, leaving the traditional computer platform to run telephones, personal organisers, television sets and a raft of household appliances.

    At the same time Microsoft has tried to turn itself into a content provider, albeit not always with unbridled success.

    If Mr Gates has his way - and makes the right decisions - Microsoft will soon be more than a big software company.

    It will be the world's top company, making money whenever and wherever information and data move around
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    See also:
    20 Jan 99 |  The Company File
    Profits surge at Microsoft

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