Article

Microsoft needs to sell what it created in '03

Margie Semilof

This was a blockbuster year for Microsoft in that it shipped more major software releases than in any year in its history.

In 2004, the software giant will have an entirely different set of challenges. It will be pressed to convince customers that they need to upgrade, or even to stick with Microsoft software in the first place.

For many years, Microsoft was a money machine, dominating markets and stashing close to $50 billion in the bank. But now industry watchers say the venerable company is likely to be entering a plateau in its growth.

This year, customers saw the delivery of

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Windows Server 2003, Exchange Server 2003, Storage Server 2003, Systems Management Server 2003 and Office 2003. But many customers remain tight with their budgets. It's not clear what will jump-start the next big wave of spending, said Dana Gardner, a senior analyst with the Yankee Group, a Boston consultancy.

"2004 will be the year that Microsoft needs to sell a lot more of these products and convince Wall Street that its growth will be on the optimistic side of predictions," Gardner said.

In many cases, IT shops are busy migrating from NT and onto Windows 2000 or Windows Server 2003. They are also moving from Exchange 5.5 to Exchange Server 2000. These migrations tend to be slow and careful.

But unlike in previous years, there are some trends that could cloud the company's future. First, there is the advent of Web services and interoperability based on open standards. There is also the emergence of grid computing, a distributed computing model where the resources of many computers in a single network are put to work on a single problem. And there is the trend to embrace more open systems and Linux.

And, when making predictions about Microsoft's future, none of these trends suggest that Microsoft will be entering a surprise growth spurt, Gardner said.

Suddenly, it's possible that upgrading from one version of Microsoft software to another might no longer be a given on the part of customers.

There are other issues that compound these challenges. The company continues to engage in antitrust battles with the European Union. The EU today rivals the United States in terms of revenue and market potential, so it's not something Microsoft can afford to ignore. Also, Europe is also a place where Linux has great potential.

Then there is the issue of security. If customers continue to receive the message that Microsoft software is insecure, and if patches continue to come at a high rate, this could be the year that Linux on the desktop shows up in market research.

"The city of Munich and companies like Burlington Coat Factory will show the way," said David Friedlander, an analyst at Forrester Research, a Cambridge, Mass., consulting firm, citing two examples of organizations that are using Linux on the desktop.

Now companies like Novell Inc., as well as IBM, are backing Linux, said Rob Enderle, a consultant based in San Jose, Calif. "In the case where IBM is the backing company, well, if anyone can pull [a successful Linux migration] off it's IBM Global Services," Enderle said.

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