By STEVE LOHR
THINK back to Round 1 of the Internet, when things really got rolling
in 1995. The computing landscape was shifting, and a cool,
fast-growing young company symbolized the new order: Netscape. At the
time, Microsoft looked to be a lumbering old war horse, trapped in the
yesteryear of desktop personal computer software, word processors,
spreadsheets and operating systems. It seemed, in other words, so
But, of course, Microsoft emerged a winner. It embraced the Internet
and vanquished the Netscape threat with hard work, ingenuity and
strong-arm tactics that a federal court ruled violated the nation's
antitrust laws. Microsoft's shares soared to a record high at the end
The Internet, Round 2, is now under way. Again, the computing terrain
is changing remarkably, helped along by free software like Linux and
the spread of high-speed Internet access. Today, all kinds of
computing experiences can be delivered as services over the Internet,
often free and supported by advertising. Clever Internet software can
now turn flat, view-and-read Web pages into snappy services that look
and respond to a user's keystrokes much like the big software
applications that reside on a PC hard drive. New companies are even
sprouting up to offer Web-based word processors and spreadsheets,
products long regarded as mature - and long dominated by Microsoft's
Champions of the Internet services model range from I.B.M. to
start-ups. But the totemic company in this next big evolutionary step
in computing is Google, the Internet search power whose ambitions
appear to be growing as fast as its profits.
And Microsoft? It once more finds itself surrounded by doubt and
dismissed as a laggard. Some of its own senior engineers have defected
to Google and elsewhere, and its stock price has barely budged in
three years, despite solid earnings growth, because others appear to
be winning the race for the future.
The familiar pattern of a decade ago begs the question that Bill Gates
was asked when he met last month with a group of executives and
journalists from The New York Times: Will you do to Google what you
did to Netscape?
Mr. Gates, the Microsoft co-founder and chairman, paused, looked down
at his folded hands and smiled broadly, as if enjoying a private
joke. "Nah," he replied, "we'll do something different."
The man whom Mr. Gates is counting on to make a difference is Ray
Ozzie, a soft-spoken 50-year-old who joined the company just eight
months ago. He has the daunting task of galvanizing the troops to
address the Internet services challenge, shaking things up and
quickening the corporate pulse.
The forces arrayed against Microsoft, analysts say, may well prove
more formidable than ever. "The problem Microsoft faces today is that
there is a totally different model emerging for how software is
created, distributed, used and paid for," said George F. Colony, the
chairman of Forrester Research, a technology consultant. "That's why
it's going to be so difficult for Microsoft this time."
Yet there are optimists. Big industry shifts, they say, create
opportunity. Inevitably, they note, Internet computing erodes
Microsoft's power to set technology standards, but the company can
still benefit as the overall market expands. That's what happened in
the 1990's. They say that if Microsoft shrewdly devises, for example,
online versions of its Office products, supported by advertising or
subscription fees, it may be a big winner in Internet Round 2.