Microsoft and the Internet

Throughout its history Microsoft has used ruthless business strategies in order to achieve its current monopoly position in the computer software industry. The strategy used by the company has been parodied as the ‘three E’s’, “Embrace a rival's technology, extend it to work best with Windows, and extinguish the competition,” (Hu 2001). Microsoft’s very first version of DOS was bought for $50,000 dollars from a rival company, since Bill Gates and Paul Allen did not have time to write a complete operating system from scratch to meet IBM’s contract. The software was then used to establish a lead in the IBM-compatible PC market which has since proved unassailable. Since the release of DOS, Microsoft has pursued an extremely aggressive strategy designed to ensure the continuing dominance of both its operating systems and, later, its applications software as well.

However, the rapid rise of the Internet over the course of the last decade was not foreseen nor planned for until it was almost too late. The way Microsoft has behaved since its realisation of the importance of the Internet to the future of computing has perhaps provided the best example yet of the merciless manner in which the company conducts its business.

In the last few years it has become customary to use ‘Information Superhighway’ as a synonym for the Internet but in 1993 scientists were still largely using the Internet as a research tool. At the time, the Information Superhighway was a buzz-word mostly associated with a presumed growth in interactive television services, which would carry out most of the functions we now associate with the World Wide Web and the Internet, such as online banking, shopping, multiplayer games and travel information (Wallace 1997, p89).

Bill Gates was known to be very enthusiastic about the potential of such markets and had decided that Microsoft had to be as involved as possible in this new industry. Many deals were signed with other companies, such as Intel and Tele-Communications Inc., whose position in their industries was equivalent to that of Microsoft in its own (Wallace 1997, p100 & p87).

Microsoft’s other major ‘Information Superhighway’ project was the ill-fated original incarnation of the Microsoft Network (MSN), planned as a key feature of Windows 95 and a potential rival of the major on-line services Prodigy, CompuServe and AOL (Wallace 1997, p224). Microsoft planned to make it as easy as possible for Windows 95 users to use MSN by including an icon on the desktop, which with a double click of the mouse would immediately establish a connection to the service (Cusumano & Selby 1995, p183).

Originally planned as a set of proprietary protocols and authoring standards it became apparent, even before the launch of Windows 95 that the initial direction chosen for the project would not prove to be successful in the face of the rapidly growing interest in the World Wide Web, the Internet and the ‘browsers’ needed to view websites. The original specification for MSN did not allow for any Internet access, one project manager was quoted as saying, “There just wasn’t any sense at all that the Internet was an alternative way of providing information,”(Wallace 1997, p118).

The first graphical internet browser was not finished until early 1993 when Marc Andreessen, Eric Bina and a team of other programmers at the National Center for Supercomputing Applications (NCSA) in Illinois finished work on the ‘Mosaic’ browser, designed to view documents written in the HTML format recently defined at CERN in Switzerland (Wallace 1997, p16-17). As the popularity of the browser (which was being offered as a free download by NCSA) increased, people around the world were starting to realise that the Internet and not interactive television would be the major technology in the software industry over the coming years. Rob Glaser, a vice president at Microsoft, was one of the first at the company to use Mosaic and described his experience thus, “All the light bulbs went on for me. I honestly thought, ‘This is the future!’ That was my epiphany…” (Wallace 1997, p84).

However, Internet access within the Microsoft corporate network was non-existent at the time due to security fears after reports of code being leaked over the Internet at Apple (Wallace 1997, p151). Rob Glaser attempted to encourage the MSN project to adopt the Internet as a key part of the service’s strategy but was met by apathy, caused mostly by a feeling that there was no time to incorporate such a major redesign so late in the project (Wallace 1997, p118).

It was January 25th 1994 when the first significant signs of a change in attitude began at Microsoft; James Allard, a project manager who had been working on a ‘non-sanctioned’ TCP/IP stack, wrote a memo to senior managers suggesting that “Microsoft get busy creating its own Mosaic-like browser and include Internet communication protocols in Chicago (AKA Windows 95),” (Wallace 1997, p149). Interestingly, this memo is also credited with the first use of ‘embrace and extend’, the words which, “would eventually become the centrepiece of Microsoft’s Internet strategy,” (Wallace 1997, p149) and the parody of which is mentioned at the top of this writeup.

In the year before this memo was written the World Wide Web had begun its exponential growth phase, going from 50 commercial websites in January 1993 to approximately 10,000 in October of that year, and 80,000 copies of Mosaic were being downloaded from NCSA every month (Wallace 1997, p206). However, even despite these astonishing growth statistics, Microsoft had still only got five people working on its new browser in August 1994 (Wallace 1997, p207). As the emphasis on the Internet grew within Microsoft it quickly became apparent that there would be no time to finish the browser for Windows 95’s eventual release date in August 1995 (Wallace 1997, p208). This eventually led to Microsoft licensing the Mosaic browser from Spyglass (Wallace 1997, p236), a licensing agreement which was then renegotiated after Windows 95’s release so that the browser could be ported to Windows 3.1 and the Apple Macintosh (Wallace 1997, p288).

Even so late before the release of Windows 95, it was still not apparent that Microsoft was prepared for just how much of a change in its business the Internet would cause. Without the changes that were to begin in the months leading to the product launch Microsoft would have been in danger of being left behind in the information revolution, just as IBM had been left behind in the Personal Computer revolution of the late 1970’s and early 1980’s (Wallace 1997, p21). Fortunately for Microsoft, Bill Gates, the CEO and a founder of Microsoft, realised this fact in May 1995 and issued the, now famous, “‘Internet Tidal Wave’ memo to his executive staff,” (Wallace 1997, p148). In the memo Gates asserted that, “The Internet is the most important single development to come along since the IBM PC was introduced in 1981. It is even more important than the … graphical user interface (GUI),” (Wallace 1997, p265). He also suggested that his staff become familiar with the World Wide Web and requested that, “every product plan … go overboard on Internet features,” (Wallace 1997, p266). Microsoft had finally realised that it had nearly missed out on what had to be a very important part of their strategy if they were to maintain their monopoly position in the desktop software industry.

Microsoft had already conceded a considerable lead to a start-up company which had captured the majority market share in browsers. Netscape Communications was founded on April 4 1994, (Wallace 1997, p175) and the first version of its browser, Netscape Navigator, was released on October 14, 1994 (Wallace 1997, p193) and by the time Gates wrote his ‘Internet Tidal Wave’ memo, over 5 million copies of Navigator had been downloaded or sold, ‘giving Netscape an estimated 70 percent chunk of the market,’ (Wallace 1997, p263-264). After Gates failed in an attempt to buy Netscape (Wallace 1997, p264), the Microsoft browser, Internet Explorer, became a top priority at the company, especially since it was now going to miss the Windows 95 launch and would have to be downloaded as an add-on to the operating system (Wallace 1997, p265). Version 1.0 of Internet Explorer was eventually made available as part of the ‘Windows 95 Plus! Pack’ in August 1995 (Wilson 2001), the infamous browser wars between Microsoft and Netscape had now begun.

An important announcement was made regarding Internet Explorer at Microsoft’s Internet Strategy Workshop on December 7 1995 when Bill Gates announced that Internet Explorer would be downloadable for free from the Microsoft website and would eventually become an integral part of future versions of the Windows operating system (Wallace 1997, p288). The decision to make Internet Explorer into what is effectively ‘freeware’ was made only on the morning of the announcement (Wallace 1997, p289) and represented a complete change of opinion from Gate. When Ben Slivka had suggested that Microsoft’s browser should be given away for free, in a memo issued the day after the “Internet Tidal Wave”, Gates had, “exploded and called him a ‘communist’,” (Wallace 1997, p266). However, with the benefit of hindsight it was a wise decision as Netscape was still charging users to use Navigator if they required any sort of customer support. Netscape held on to most of its market share against the challenge of Explorer 2.0 by having better software, including support for new web technologies such as Java applets, JavaScript and frames (Lowe & Arevalo-Lowe 2002).

The third release of Internet Explorer in August 1996 heralded the turning point in the ‘browser wars’, “many said it was as good if not better than the latest version of Netscape Navigator. And it was free,” (Wallace 1997, p292-293). At the finish of 1996, CompuServe, AOL and Prodigy were all using Internet Explorer as their default browser, further guaranteeing increased market share to Microsoft (Wallace 1997, p293). With this third release, Microsoft effectively regained all the ground they had lost due to their slow initial release and in 1998 Netscape announced that all future versions of Navigator would be free and that the code would be available ‘Open Source’ (Lowe & Arevalo-Lowe 2002). An open source release means that developers may examine and change the code as they like, subject to the license under which it is issued. The seeds of Netscape’s demise as a major player in the browser market were already sown and bug-ridden recent releases have not aided the software’s reputation, by 2001 the browser’s market share was down to 30% (Lowe & Arevalo-Lowe 2002) and will probably never get any higher. Microsoft now has the same dominant position in the browser market as it does in the applications suite and operating system markets on the PC.

However, winning the browser wars is not the only area in which Microsoft has had to fight territory wars on the Internet. Sun Microsystems' Java programming language has also proved a bane to Microsoft.

Java was made publicly available in 1995 and has proved very popular with programmers. Java’s features allow it to be run on ‘almost any computer’, (Wallace 1997, p267) which is especially useful on the web since so many different types of computers connect to the Internet. What Java means for website designers is that they can write small programs to be downloaded with a web page to make the page more interactive or attractive. Netscape was Java’s first corporate customer in August 1995 and they used the technology in just this way, hugely expanding the possibilities for websites as far as designers were concerned (Wallace 1997, p267).

In order to compete with Navigator, Explorer also eventually got Java capabilities but Microsoft has since tried to lessen the impact of the language through development of its own cross-platform programming language, C# (pronounced C-Sharp), which is very similar to Java, and by dropping support for Java from its recent Windows XP operating system (Shankland 2002). There is a long-running court case between Sun and Microsoft with Sun accusing that Microsoft are deliberately trying to sabotage the progress of the language by abusing its monopoly position in PC operating systems. The accused abuses are such things as non-standard implementations of the Java specification and that dropping support for Java from Windows XP amounts to a breach of a settlement made in previous court cases. Recently, Microsoft has been ordered to include Java in Windows XP until January 2nd 2004, when the current agreement runs out (Shankland 2002).

The C# programming language is a central part of another new weapon in Microsoft’s Internet strategy, ‘.Net’. .Net has been envisioned as a way of allowing software on a number of different Internet-connected devices to interact as seamlessly as possible (.Net Home 2002). Throughout its history a standard tactic at Microsoft has been to try and define the standard for new software before others get the chance, or at the very least to eliminate any standards that existed before Microsoft’s own. Evidence of such tactics comes from the strategy used during the browsers wars and the ‘per-processor’ deals struck with PC manufacturers, which meant they had to pay Microsoft a royalty for every computer they sold, regardless of whether it was packaged with Microsoft software or not (Wallace 1997, p36-37). With .Net, Microsoft intends to define the standard for software communications between different types of devices and thus ensure a guaranteed income in the future should these ‘Web Services’ become a major application of the Internet. Microsoft’s main competition in this area appears to come from Sun, whose Java Enterprise Edition offers similar capabilities (http://java.sun.com).

One area in which Microsoft is now fighting a vicious battle for market share is the ‘Instant Messaging’ software clients. These clients allow users to send little messages from one computer directly to another, much like text messaging on mobiles but the services are provided for free on the whole. Its tactics this time are also much the same as it used in the browser wars, Microsoft has included its instant messaging client as part of Windows XP, in the hope that users will use it without investigating alternative instant messaging clients. The software, called MSN Messenger, is important to Microsoft because of the integration it provides with its Hotmail and Passport services. As in the past, the Messenger client is now gaining substantial ground on its main competitor, AOL’s Instant Messenger, and is being rapidly updated with new features that are not available in rival software (Hu 2001). Microsoft’s point of view appears to be that if other companies become standard parts of the Windows computing experience there is always the threat that they will eventually end up replacing Windows and thus Microsoft.

Microsoft’s applications and operating systems have also become increasingly Internet orientated since the release of Windows 95, with successive versions of their software making it more and more advantageous for users to be connected to the Internet, especially if they intend to be using Microsoft software to do it. The latest version of Windows XP now depends on the Internet for software updates as well as providing a firewall and facilities for support staff to operate your computer over an Internet connection as part of the operating system. The latest versions of the Microsoft Office suite now allow all documents to be saved in the HTML webpage format and offer facilities to easily send documents to be published on a web server.

Although Microsoft’s initial reaction to the Internet was verging on the hostile, it is a tribute to the company’s continuing desire to remain at the forefront of its industry that it was so able and willing to carry out such a dramatic change in its plans for the future. Such sweeping changes could have made the company look foolish if they had failed; Microsoft already had a monopoly on PC operating system and office applications which looked as though it would be unassailable for years to come. It is apparent, however, that the rapidly increasing use of the Internet in all parts of life is something Microsoft must be a successful part of if it is to remain as the market leader. Microsoft and Bill Gates have proved in the past that they are willing to bet the future of the company on new products, from DOS 1.0 through to Windows XP, and once again it looks as though they have made the right decision in choosing to endorse the Internet so wholeheartedly.

The tactics Microsoft uses are unsavoury to its competitors and some potential customers, and indeed are sometimes illegal, as can be witnessed by various anti-trust rulings over the last decade. Whether the company should be allowed to operate in this manner is a matter of opinion but while the courts of America prove so unable (or unwilling) to prevent Microsoft abusing its position of power it is clear that the tried and tested strategy of ‘embrace and extend’ will continue to be used at Microsoft, as it would at any of their competitors were they to find themselves in a similar position.

This is a node your homework node.

• Cusumano, Michael A. & Selby, Richard W. (1995), Microsoft Secrets, HarperCollinsBusiness, Glasgow
• “Defining the Basic Elements of .Net”, (2002, April 4 – last update), (“.Net Home”), Available: http://www.microsoft.com/net/basics/whatis.asp (Accessed: 12/01/2003)
• Hu, Jim, (2001, June 7 – last update), “Microsoft messaging tactics recall browser wars”, (“C|Net News.com”), Available: http://news.com.com/2009-1023-267971.html (Accessed: 12/01/2003)
• Lowe, Richard & Arevalo-Lowe, Claudia (2002 – copyright), “History of Browsers”, (“Browsers”), Available: http://www.internet-tips.net/Browsers/history.htm (Accessed: 12/01/2003)
• Shankland, Stephen (2002, June 18 – last update), “Microsoft to reinstate Java in Windows”, (“C|Net News.com”), Available: http://news.com.com/2100-1001-937053.html (Accessed: 12/01/2003)
• Wallace, James (1997), Overdrive: Bill Gates and the Race to Control Cyberspace, John Wiley & Sons, Inc., United States of America
• Wilson, Brian (2001 – last updated), “Browser History: Internet Explorer”, (“Index DOT Html”), Available: http://www.blooberry.com/indexdot/history/ie.htm (Accessed: 12/01/2003)