Microsoft's woes foment high-tech insecurity

By Dick Satran (Reuters)

SAN FRANCISCO, April 27 (Reuters) - Technically boring, unimaginative and pushy is how many in the high-tech industry see Microsoft Corp. (NasdaqNM:MSFT - news), but most agree the software giant has been the life of an extraordinary party that nobody wants to leave.

As it starts its anticipated long battle to avoid a breakup, Microsoft finally may be unable to provide the leadership it's given for nearly two decades as a financial model and an arbiter of industry standards.

The stock market's reaction last month to its failure to reach a settlement in its antitrust case demonstrated that Microsoft may not be the only loser in the suit. Since then, the stock market has seen some of its most volatile trading ever.

``When you remove a central player, you create a vacuum,'' said Rob Enderle, an analyst for Giga Information Systems. ``Microsoft was the super-hero of the technology set and the glue that made everything work. Now the industry doesn't really have that.''

Many technology executives liked the certainty of dealing with Microsoft in a fast-changing high-tech environment. A CIO magazine poll of top chief information officers, the software gurus at many corporations, found half favoured letting Microsoft go unpunished in its antitrust proceedings.

``When we asked them why...they said 'We kind of like the monopolistic aspect of Windows,''' said Gary Beach, CIO group publisher.

The stock market, for its part, likes certainty too, and as hard as it tries to fashion new leaders out of companies like Cisco Systems Inc. (NasdaqNM:CSCO - news), America Online Inc. (NYSE:AOL - news) or Oracle Corp. (NasdaqNM:ORCL - news), ``none of them runs the gamut of the tech industry like Microsoft does,'' said Enderle.

THE NEXT MICROSOFT

``It'll be the next Microsoft'' is a phrase that, for years, rolled from the lips of venture capitalists, investment bankers, stock brokers and upstart chief executives trying to create a buzz around their company.

Microsoft provided a crisp model, doubling in value at about the same rate -- every 18 months or so -- as computing power doubled on computer chips. Its financial power made it the world's wealthiest company less than two decades after it was launched, paralleling the longest economic expansion in U.S. history.

``Investors like a story,'' said John Davidson, a strategist

for investment fund Orbitex Management. ``It's part of human nature to look for leadership and heroics. Investors want them, too. And Microsoft had all the elements.''

The story, though, has turned more grim over the past six months, as Microsoft has been formally labeled a monopolist by a U.S. court judge and prosecutors have sought to impose appropriate remedies. Since the first ruling in the case last fall, Microsoft has lost nearly half its market value, and yielded its position as the No. 1 company by market capitalisation to Cisco, which makes Internet equipment. More recently Bill Gates's ``world's richest man'' title has fallen under threat from arch-rival Larry Ellison of software company Oracle, since both men are now worth just over $50 billion.

STRUGGLING WITH NEW FORCES

The government's antitrust case is only part of the story in Microsoft's fall.

``Microsoft has been slowly losing its domination anyway, for a long time,'' said Roy Blumberg, money manager at Sheer Asset Management. ``A lot of companies have been whittling away at it for a long time.''

Microsoft also has been struggling to maintain its position due to the rise of the ``post-PC'' world, in which smaller and more powerful chips are being embedded in telephones, game players and handheld computers, and providing new competition for Microsoft's desktop software.

CIO magazine's poll found that technology executives ``felt that the world was moving off the desktop as the centre of the universe. Few believed that any one company can dominate the Internet computer world.''

Companies like Microsoft have traditionally set the ``standards'' for software, which gives them control over their use. But increasingly, open source software, in which many developers collaborate to write programmes, has gained favour, and industry bodies have governed the development of Internet standards.

``Open source software is not going to be as profitable as software was in the shrink-wrapped world,'' said Aram Fuchs of Fertileminds.net, an Internet stock service. ``It's not as good a business as shipping a code on a disk for a few hundred bucks.''

NOT A RATIONAL TIME

``It's a very complicated and not necessarily rational time of life in the tech industry,'' said Tony Perkins, editor of Red Herring magazine and author of ``The Internet Bubble.''

The chance of ``another Microsoft'' being created ``is probably over, per se,'' said Perkins, even though some have cast Amazon.com Inc. and other Internet start-ups into that role, he said. But the online retailer will never to be able to dominate in the way that Microsoft has, he argued.

``The networked world is going to create an incredible economic boom, built on the efficiency that can be created on the Internet,'' Perkins said. ``But that fact that nobody can build a wall around the standards for operating on the Internet creates a level playing field that no company will be able to dominate.''