Microsoft Plans a New Strategy for the Internet

        By JOHN MARKOFF

            Once a week, in the corporate boardroom,
            Microsoft's chief software architect takes refuge
        from the antitrust storm raging around the company's
        Redmond, Wash., campus to meet with a handpicked
        group of designers who are hammering out the
        company's future.

        The chief architect is William H. Gates, who in January
        stepped down as chief executive, turning his attention
        toward a loosely articulated vision of a future in which
        the company's business moves away from the personal
        computer and onto the Internet.

                              It is a course rife with
                              perils. First, it steers
                              Microsoft into markets not
                              easily conquered by
                              wielding the muscle of its
                              Windows operating system
                              monopoly. And hanging over
                              every decision is the
                              knowledge that Microsoft's
                              last move to extend its
        Windows power to the Internet, in 1995, steered the
        company straight into a landmark antitrust lawsuit by
        the government. The result, clearly summarized in a
        scathing decision by a federal judge on Monday, has
        been a series of painful legal losses for a company long
        accustomed to winning.

        The new strategy, pursued under the awkward rubric of
        Next Generation Windows Services, or NGWS, is to
        translate many of the features of the Windows operating
        system into free-floating utilities available to users not
        just on the desktop but on the Internet and accessible
        from anywhere. These utilities would provide
        standardized ways to do things like billing, publishing,
        producing directories, personalizing online services
        and many other routine activities that take place
        millions of times a day on the Internet.

        More than that, Microsoft is trying to lash together all
        aspects of using the Internet into a unified set of
        software tools and services that it says will be as
        powerful and easy to use as its Windows family of
        personal computer operating systems.

        "The fundamental premise of NGWS is integration,"
        said Charles Fitzgerald, the director of business
        development for Microsoft's platforms group. "This is
        the answer to the question of how do you get all of the
        disparate things on the Internet to talk to each other?"

        The concept is based on XML, an Internet standard
        intended to interconnect content, financial information
        and transactions. The focus of computer technology in
        the late 1980's and early 1990's was the graphical user
        interface, or GUI (pronounced GOO-ee), which
        established a common set of visual and interactive
        controls for all the applications that ran on an operating
        system. Mr. Gates and his company are making a huge
        bet that the Next Big Thing is a concept that Microsoft
        executives call the Internet user experience, or I.U.E.

        The company has said it will spell out its complete
        I.U.E. vision in May at an event for reporters and
        analysts in Redmond. The emphasis being placed on the
        event brings to mind Microsoft's now-legendary
        "turning of the battleship" day on Dec. 7, 1995, when it
        announced that it was reversing strategy and committing
        its software development resources to dominating the
        Internet.

        The new idea is to free computing from the
        desktop-bound personal computer, giving users access
        to all their personal information needs and computing
        capabilities wherever they happen to be. It is a concept
        that brings to mind the era of the mainframe computer,
        which centralized both processing power and
        information storage. But it also anticipates a new
        generation of personal computing devices, sometimes
        called Internet appliances, that will act as
        always-connected terminals to all this centralized
        power.

        But while this general view of the technology is rapidly
        evolving, Microsoft admits that no business model has
        been adopted.

        At a news conference in January, Mr. Gates said he had
        no problem thinking of this concept as "an operating
        system for the Internet."

        It is a potentially powerful idea, but critics assert that it
        is not original and could very well intensify the scrutiny
        of the Justice Department, the federal court and
        competitors.

        "This is designed to lock people into Windows," said
        Bill Joy, Sun Microsystem's chief scientist. "Microsoft
        doesn't like the idea the Web doesn't require them, and
        so this is the same old stuff from the same old
        suspects."

        Indeed, many software experts who are familiar with
        the strategy say it is simply Phase 2 in the strategic
        march on the Internet that Microsoft began in 1995
        when Mr. Gates announced an all-out effort to
        "embrace and extend" the Internet.

        Others argue, however, that this
        time Microsoft will be only
        one in the pack in the rush
        toward next-generation Internet
        services ranging from storing
        files to performing different
        types of electronic transactions.

        "The ways the Net will change
        in the next five years have more
        to do with the cellular
        telephone than the Windows
        desktop operating system," said
        Michael Hawley, a computer
        scientist at the Massachusetts
        Institute of Technology's Media Laboratory. "This is a
        huge challenge, and reinventing the DOS operating
        system for the Internet won't solve fundamental
        problems."

        For Microsoft, however, the opportunity looks
        immense. Indeed, while the company made what it now
        acknowledges was a wrong turn into Internet-content
        development during the last three years, in recent
        months it has refocused its efforts on its traditional
        strengths: software and tools for developers.

        As an example of the kind of services that will be
        characteristic of NGWS the company points to its
        Passport service, an online digital wallet that enables
        users to identify themselves and make purchases at
        multiple Web sites.

        "Passport is a good indicator," Mr. Fitzgerald said.
        Moreover, he said that Passport is an example of a
        Web service offered by Microsoft that does not lock the
        user into the Windows operating system, but instead
        will allow computer users from competing operating
        systems to use the features of the service.

        He also said that although Microsoft had been working
        on parts of the NGWS idea for as long as five years, it
        has taken longer to bring together than the company had
        expected. And it may be several more years before the
        services become a part of the company's operating
        systems.

        Announced in January, the first visible sign of the
        NGWS shift was a recent corporate reorganization. On
        March 30, the company announced it was unifying its
        operating systems and software tools divisions under
        two veteran executives, Paul Maritz and Jim Allchin.

        "What are the opportunities?" said one Microsoft
        executive, who spoke on the condition that he not be
        identified. The answer, he said, lies in simplifying the
        challenges faced by e-commerce companies. "All of the
        big dot-com companies have to employ the world's best
        programmers, and they spend 99 percent of their time
        doing plumbing."

        The key to standardizing software functions on the
        Internet, Microsoft has said, lies in application program
        interfaces, or A.P.I.'s, the digital templates that enable
        developers to create many varieties of software that all
        share a common look and a common way of performing
        many functions, like printing, manipulating on-screen
        windows and constructing menus. A.P.I.'s are the
        templates that give Windows programs or Macintosh
        programs a similarity .

        By offering a standardized set of A.P.I.'s similar to
        those used in Windows, Microsoft is gambling that it
        can extend the power of its operating system to the
        Internet.

        In the race to build this kind of software infrastructure
        for the Internet, however, Microsoft is neither alone nor
        first. Other operating system companies as well as a
        new generation of Internet companies known as
        application service providers, or A.S.P.'s, are already
        pursuing the idea, and many already have products and
        services on the market.

        For example, in the last year Microsoft's archrival Sun
        Microsystems has been marketing a set of products
        called Sun Tone, which it calls an Internet dial tone. a
        gateway that is always open to the Internet.

        And Apple Computer has recently begun to offer the
        first of an extended set of services that will link the
        Macintosh operating system directing to the Internet.
        The first, a product called iTools, includes software
        that filters content for children.

        Moreover, hundreds of application service providers
        already offer online services.

        That poses a major challenge: to the degree that
        Microsoft leaves its PC base of power behind, it may
        leave its traditional leverage behind.

        And there are many people, even inside Microsoft, who
        still say they believe that Mr. Gates will never be able
        to cut loose entirely from the company's PC heritage.

        "Is Bill going to get up on stage and say, 'The king is
        dead, long live the king?' " said one Microsoft
        executive. "I can't imagine that will ever happen."
 

For the NY Times' coverage of the Microsoft trial, click on the graphic.