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By BRIT HUME and T.R. REID

Microsoft, the software giant, seems at last to have begun to understand how it came to be perhaps the most successful and powerful technology company on earth, and perhaps the most unpopular as well.

Contemporary America may be a good place to make a fabulous success of your business, but don't expect to be loved for doing it.

For years, Microsoft did not believe it needed the legal, political and public relations apparatus most other large companies have found necessary. Bill Gates apparently figured that if he didn't ask the government for favors, the government would leave him alone. For a long time, it did.

As Microsoft built its dominant position in the computer software industry during the 1980s, its principal antagonist was IBM, which had hired Microsoft to develop the software operating system for the original IBM PC, but made the mistake of not buying the software outright from Microsoft. Instead, IBM allowed the software company to keep the rights and license the program to other vendors.

That helped create the intensely competitive atmosphere in which many companies made PCs, and Microsoft sold the operating software to all of them, while IBM struggled, ultimately unsuccessfully, to maintain the advantage it had earned by developing the PC in the first place.

Microsoft's early entries in the market for application software did not suggest it would come to dominate that market as well.

For years, none of Microsoft's applications was the industry standard. Lotus Development Corp. dominated spreadsheets with its 1-2-3 package, WordPerfect Corp. led in the word-processing market, and Microsoft did not even offer a database program or a modem communications package.

But with a steady cascade of cash from its operating software, the company had plenty to spend on hiring talented programmers and on developing powerful programs in nearly every application area. It also had plenty of money to make the newer Windows operating environment the dominant player as the industry moved into the new era of "graphical user interfaces," where mouse clicks on on-screen icons replaced the entering of arcane commands from the user's keyboard.

Not even the Department of Justice argues that Microsoft's dominant position in operating systems was improperly gained. But Microsoft, having watched IBM lose its way by failing to understand the importance of the new PC technology, knew that today's dominance can be tomorrow's decline in the fast-changing atmosphere of microcomputer technology.

And it almost happened. Microsoft at first failed to see the importance of the Internet, and by the time it realized what was happening, Netscape had grabbed the market for Web browsers and Microsoft was suddenly behind. What made it worse for Microsoft was that the new programming language, Java, which was used primarily for little Internet-based programs called "applets," threatened the company's dominance in the operating system market.

That's because Java-based programs would run on any computer using any operating system that had a Java-compatible browser. Some industry analysts could foresee a day when nobody kept applications stored on their computers, but instead connected to the Internet (or their company's "Intranet") and got whatever program they needed. It would no longer matter whether their own computer was a PC running Microsoft Windows, an Apple Macintosh or something else.

The Web browser had become not only the hot new application, but also the possible path to a world in which operating systems were much less important. And here was Microsoft, with billions invested in its operating software and applications designed for it, but no position at all in the browser market and the brave new world of Java.

Microsoft scrambled furiously to develop a browser and acted aggressively to catch up with Netscape's Navigator, and here is where the company's unhappy competitors found a sympathetic ear at the Department of Justice. Microsoft's requirement that computer vendors who included Windows with their new systems also include Microsoft's Web browser, Internet Explorer, looked suspiciously like a case of "tying," an illegal practice in which a company forces customers to accept an unwanted product in order to get one it does want.

Never mind that Microsoft did not charge for Internet Explorer, and never mind that other browsers could be included also. And never mind either that Explorer was interwoven with the operating software to the point that disabling it meant partially disabling the operating system. Microsoft was forced to back down, and to remove at least the icon representing Internet Explorer from the opening screen of Windows 95.

Microsoft, now on the defensive, is hurriedly backing out of deals that might look as if they were designed to squeeze out the competition, and is considering recommendations from its public relations experts to spend millions to give itself a kinder, gentler image. Welcome to Washington, Mr. Gates.

T.R. Reid is Rocky Mountain bureau chief of the Washington Post. Brit Hume is managing editor of Fox News in Washington. You can reach them in care of the Washington Post Writers Group, 1150 15th St., Washington D.C. 20071-9200, or you can e-mail T.R. Reid at trreid@ix.netcom.com, or Brit Hume at 72737.357@compuserve.com.

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