Here is why this seemingly dumb move may be one of the greatest tactical strategies Microsoft ever makes.

1. Windows 2000 dates keep slipping. It was to ship before Comdex, now it will ship next year. They are having trouble. Sell it high, before it loses its value or another competitor rises. (Anybody want to buy the source code to the latest version of DOS?)

2. Windows isn't making money on upgrades. I have heard that when you buy NT 4.0, Microsoft is sometimes giving you the Windows 2000 upgrade for free. Microsoft won't make big money on this - they won't lose any, since "free" probably means a $10 shipping and handling fee, but let the new company give this software away.

3. People are tired of "upgrades" that downgrade their computer's performance. Windows 2000 may boot faster but is probably slower overall. People are getting tired of having to buy a new computer just to run the latest version of what they just had.

Even Microsoft's own data confirms this, that given the same computer and memory, Windows 98 (for instance) is slower than Windows 95. This trend explains why Windows 98 didn't have people lining up around the block like 95 did. (Source of information is Microsoft since they compared each of these systems to NT4 and NT4 was much faster than 98, and somewhat faster than 95.) At what point will people say NO?

4. Maintaining all the Windows (98, 2K, CE, etc) is getting to be a major headache. There will be the 98 (consumer) upgrade version, the NT4 (professional) version, the corporate (multi-processor) version and probably the CE version. I see four operating systems. Supporting and upgrading these highly complex pieces of software is a daunting task for any company. Microsoft should jump at the chance to get out of the OS racket and make money on the easy items. You can bet there are probably not so many support calls on Powerpoint or mice.

5. I have heard rumors that Microsoft "tests" the bugs away. As the number of lines of code increase (assuming the same percentage of bugs as 95), there will be more bugs. Since there are more features to test (USB, Firewire, etc.), it will take longer to test. Again, sell the problem and concentrate on the fun and profitable stuff. Operating systems were profitable when they were relatively easy to build, now they are just yielding diminishing returns.

6. Linux sales is on the rise. There is also BeOS as well and the dark horse, IBM still has OS/2 locked away somewhere and could put this graphical look on Linux. If Windows remains expensive, buggy, and proprietary, people will look for alternates in even greater earnest. If Microsoft waits until some major bug or security glitch arises and then the government forces a sale, the OS won't be worth as much. Don't forget that NT4 is on its fourth patch and most software packages REQUIRE a Level 3 patch. Today, reliance on the Internet means that companies using NT web servers could be devastated if such serious security flaws were uncovered today. Microsoft should dump this division at its peak of value and avoid costly dot-com lawsuits.

7. The incestuous relationship between Microsoft applications and the Windows operating system is the crux of the monopoly that people are concentrating on. Ditching the OS will make Justice and the pitchfork carrying mobs behind them go away quickly.

8. The use of the Application Service Providers (ASPs) is rising. Instead of selling an operating system, why not create a free, web-based desktop environment that runs on any computer, allowing you to sell access to "pay-as-you-go" applications on the Web? Make money by eliminating the operating system entirely (but sell it first).

9. What's left to prove? With Windows already commanding market share, it will be extremely difficult to capture the remaining 5%. So, there is really no place to go but down in market share. Get out when the gettin's good.

10. Even with the problems with Windows 2000, its value is probably more now than it ever will be. Since the deal will be for piles of cash, Microsoft can then entrench itself into more businesses that can weather any type of financial storm. Take the money and run!

Conclusion

Selling the Golden Goose

Copyright © 1999 Rick Smith All rights reserved.