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Thursday, 20 April, 2000, 18:53 GMT 19:53 UK
The software superpower

Microsoft is the world's largest software firm, in fact it is the most valuable company on earth - well, it was until technology stocks fell out of favour during April 2000.

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 shareholders, meanwhile, quietly reap the benefits as the company keeps on delivering high earnings and a soaring share price.

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.

  • Liberal licensing
    Microsoft's decision to license 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.
    Young Bill Gates
    Bill Gates was the driving force behind Microsoft's rapid expansion
    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 milestones
    1975 - founded in Albuquerque, New Mexico
    1976 - Microsoft develops Applesoft for Apple
    1981 - MS-Dos standard on IBM PCs
    1983 - Windows 1.0 introduced;
    Revenues pass $50m mark
    1986 - Stock market flotation
    1988 - Becomes the world's top software seller
    1995 - Launch of Windows 95
    1997 - Department of Justice files anti-trust law suit
    2000 - Bill Gates steps down as chief executive;
    Launch of Windows 2000
    It was the year when MITS, a company from Albuquerque, New Mexico, produced the world's first commercial minicomputer, the Altair 8800. Bill Gates, who had entered Harvard in 1973 as a freshman, and his friend and partner Paul Allen read about its creation in a magazine and set about developing an interpreter of the computer language Basic to run on the machine.

    The computer maker was impressed by their work after Allen flew across the country to demonstrate it. MITS promoted their computer language and 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.

    Microsoft's second language product, Fortran, shipped in November 1977, and the following year the company's revenues topped $1m for the first time.

    A year later Cobol 80 went on sale, and Microsoft moved to Seattle, the home city of Gates and Allen.

    The big break

    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.
    Steve Ballmer
    Since January 2000, Bill Gates' old friend Steve Ballmer is Microsoft's president and chief executive
    Two years later came the first version of Windows, while revenues had surged to $50m.

    Success

    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.

    By 1988 the company was the world's top software seller.

    Some 25 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 $504bn and employs more than 28,000 people.

    Microsoft shares trade at dizzying heights. When the firm floated on the stock exchange, its shares were priced at $21. One of those shares, with all benefits reinvested, would now be worth more than $13,000.

    This kind of success has made Mr Gates the world's richest man. During 1999 his personal wealth passed the $100bn mark 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
    MS Internet explorer box
    The Internet Explorer was Microsoft's weapon to fight Netscape
    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 close to deciding whether Microsoft illegally tried to divide the browser market and keep rivals like Netscape out of business.

    The court's proceedings, though, have failed to make any impact on Microsoft's earnings.
    Bill Gates
    Bill Gates' new focus is on Microsoft's software development
    The company's software business goes from strength to strength. Applications like office suites and server software rival the sales of its Windows 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.

    To ensure success, he styled himself as Microsoft's "chief software architect" and handed over the day-to-day running of the company to his friend from Harvard days, Steve Ballmer.

    For a while, Microsoft tried to turn itself into a content provider, but this move was not a success story.

    The company is now rediscovering its roots - software - and is trying to turn itself into the chosen software provider to both internet users and e-commerce companies.

    If Mr Gates has his way - and makes the right decisions - Microsoft will continue to be the world's top company, making money whenever and wherever information and data move around.

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    See also:

    16 Feb 00 | Business
    Countdown to Windows 2000
    16 Feb 00 | Business
    Review: Windows 2000
    16 Feb 00 | Business
    Linux - Microsoft's new nightmare
    16 Feb 00 | Business
    Apple - back to the future
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