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Predictions for 1999: Microsoft's woes to continue

By Richard Morochove

First published January 7, 1999

Microsoft's legal troubles dominated computing headlines in 1998. In May the U.S. Department of Justice joined forces with some 20 states, alleging the software giant engaged in anti-competitive business practices. Microsoft was charged with using its controlling position in desktop computer operating systems, represented by its Windows software, to gain an unfair advantage in Internet software.

The anti-trust action will continue to make news for at least the first couple months of this year. While the evidence presented so far has built a compelling case against Microsoft, I don't believe the remedy will lead to a drastic action such as the breakup of the company.

Recent changes in the competitive marketplace will likely mean a slap on the wrist for Microsoft, which will be required to make some changes in its business practices. Perhaps a judge will be appointed to oversee certain aspects of Microsoft's operations, similar to the judicial overview of IBM that lasted for decades.

If Microsoft loses its case, this will make it easier for competitors to sue the software company for its anti-competitive actions. This could have more impact on Microsoft than anything the Justice Department could dish out.

The recent bid by America Online to purchase Netscape Communications is the key development that will save Microsoft from stiffer remedies. AOL, with over 15 million subscribers, could level the Internet software playing field by bundling Netscape's browser with its online access software.

Netscape's takeover was one of three hi-tech blockbuster buyouts last year. Compaq Computer's acquisition of Digital Equipment, announced last January, turned the one-time PC clonemaker into a well-rounded computing giant. Compaq now offers a wide range of computers ranging from tiny handheld PCs to huge mainframes from Tandem, an earlier acquisition.

In June, Canada's Northern Telecom announced its acquisition of Bay Networks, which gave the telephone equipment manufacturer added expertise in building voice and data networks. This is particularly important as more long-distance telephone traffic gets routed over low-cost Internet links.

The biggest processor launch last year was Intel's springtime introduction of its Celeron chip. The chip was based on the Pentium II design, minus a few frills to save production costs. Celeron processors were designed to meet the needs of home computer users, a market Intel ignored for years in its quest for faster, more capable and more expensive chips.

Unfortunately, the first round of Celerons proved a disappointment. The chip lacked a Level 2 memory cache, so it was slower than competing processors from AMD and the Cyrix division of National Semiconductor.

Say what you will about Intel, it doesn't make the same mistake twice. The chipmaker rushed the next release of Celerons to market in the fall. This time the speedier processors included a 128K Level 2 cache and they are now at the heart of many home PCs.

The Celeron greased the skids under the prices of home PCs, which continued to slide in cost even as the machines became faster and more powerful.

Last year I predicted Intel's Pentium II processor, released in the spring of 1997, would be reduced in price and become a mainstream processor used in most PCs priced at $1,800 or more. I was spot on there.

I also correctly predicted that Windows 98 would be the biggest software release this year, although I said it wouldn't be accompanied by the same frenetic hoopla of the Windows 95 launch.

Admittedly, those were easy calls. Tougher was my prediction that MSN Canada would abandon the ISP business in 1998 to concentrate on producing content for the Web. This development was vehemently denied by the head of MSN Canada, but a few weeks ago Microsoft Canada announced it was selling its Internet access business to AT&T.

What do I see in my crystal ball?

The biggest software launch in 1999 will be the release of Microsoft's Office 2000, its suite of word processing, spreadsheet and other productivity applications enhanced with Internet publishing features.

Microsoft's other big release, Windows 2000 (formerly called Windows NT 5.0), will be somewhat disappointing. Many will consider the open source Linux operating system as an alternative.

Some commercial software developers will join the open source movement, making their source code public and allowing others to develop enhancements. Java, from Sun Microsystems, is a likely candidate.

AOL will sell the enterprise server business of Netscape, probably to Sun Microsystems, splitting up the company that was most closely identified with formative years of the World Wide Web.

This year will see the first popular computainment networks, systems that link home PCs to televisions, DVD recorder/players, colour printers and digital cameras.

The growing popularity of the MP3 digital music format will ultimately change the way the music business operates. Rather than buying a standard CD, you'll be able to order a custom disc over the Net, containing just the tracks you want.

A final prediction: Andy Grove will retire as Chairman of Intel Corp., probably in May. CW

Richard Morochove, FCA, is a Toronto-based computer consultant.

Copyright ©1999 by Morochove & Associates Inc. All rights reserved. This work may not be copied or distributed by any means without our prior written permission.

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