FT Briefing: Microsoft and the internet

The last decade has seen many attempts from Microsoft - with varying levels of success - to reproduce on the internet its success in desktop computer software.

Bill Gates, co-founder and former chief executive of Microsoft, was in 1993 quoted as saying: “The internet? We are not interested in it.” But within two years, the rise of the worldwide web meant Microsoft could no longer ignore the internet.

The 1990s

One of its first big online moves was the launch of MSN (Microsoft Networks), an internet service provider, in August 1995. It used the AOL model of internet access, where customers receive access to “walled” content and services not available to others on the outside internet. Microsoft originally wanted to dominate internet access provision, but later the same year Gates conceded that his plan might not be realistic. The MSN business is now focused on online content and services, such as its portal website, instant messaging, and search.

In 1997 Microsoft bought WebTV, a developer of internet set-top box devices, and renamed it MSNTV. While broadband internet and personal video recorders (PVRs) such as TiVo grew in success, internet set-top boxes never really took off. However Microsoft is integrating the technology into its successful Xbox games console.

Later that year it launched version 4 of its web browser, Internet Explorer, which was an undeniable success. Although Netscape was the most popular browser during the mid to late 1990s, Internet Explorer quickly took its place thanks to several factors: it was free, it was relentlessly promoted by Microsoft, and, once it got past the difficult early versions, it was arguably a better product. However its success is now under threat from several sources, mainly Firefox, an open source browser which has as much as 10 per cent of the market according to some statistics.

At the heart of many of Microsoft’s difficulties embracing the internet has been its strategy of proprietary platforms. Competitors argue that it uses its dominance of desktop PCs to create an anti-competitive environment. This was illustrated most clearly by the schisms over the .NET strategy, which was first announced in 2000 and then re-launched in 2002 after confusion from the market over what it represented. .NET had also suffered from its association with Hailstorm, an online service which was controversial for its identity verification features.

While .NET was partly based on a set of open standards known as web services, which Microsoft was the first big software company to adopt, it was still a proprietary system and a competing platform based on Sun Microsystems’ Java, J2EE, gained a better reputation for security and large deployments.

In 2002 and 2003, Microsoft viewed the open source operating system, Linux, as a key threat. While Linux - which is developed by volunteers over the internet - has never made huge inroads into the personal desktop market, it has quickly become a popular platform for corporate servers. When companies such as IBM embraced Linux, Microsoft launched an aggressive offensive, later toned down to a softer campaign, to persuade corporate IT managers that its software had a lower “total cost of ownership” (TCO) than Linux.

Around the same time Google was cementing its place as the most popular search engine. After its IPO in mid-2004, the internet search company’s market capitalisation grew quickly to make it one of the world’s largest media companies. In 2005 it expanded quickly into providing desktop search, instant messaging, internet telephony, email, local search, mapping, shopping comparisons and numerous other products.

The Microsoft memos acknowledge the stiff competition the group faces from Google, Yahoo and Skype.

They also refer to a group of new web technologies, known as “Web 2.0”, that allow internet users to easily create their own content and features. Blogging, Wikis, podcasting and RSS feeds have all become hugely popular - many of them based on open standards technology or led by small start-up companies.

The release of Google’s Desktop 2.0 software, launched in August, replaced some features of Windows itself. The same month is launched GoogleTalk, an instant messaging and VoIP programme. Although Microsoft had been offering both services for some time, it was Google’s entry that made free VoIP hit headlines around the world. Soon after Skype, a relatively tiny business, was bought by eBay for about $2.6bn.

Although its business was hardly under pressure, Microsoft gave several indications it was seriously considering its response to the changes taking place on the internet, and Google, Skype and the other new successes of the technology world.

In September, Microsoft announced a reorganisation that divided it into three divisions. MSN became part of the product platform development group, indicating it was coming to terms with the “internet as platform” concept.

In early November, Microsoft launched Live, its web-based delivery strategy for Windows and other software, including free software downloads supported by advertising.