Microsoft's nightmare inches closer to reality

As early as May 1995, three months before Netscape Communications' initial public offering sparked the dot-com boom, Microsoft executives were worried that the nascent World Wide Web could one day become a significant threat to the Windows franchise.

In an extensive memo called "The Web is the Next Platform" that was introduced as evidence in Microsoft's antitrust trial five years ago, Microsoft engineer Ben Slivka described a "nightmare" scenario for the software giant.

"The Web...exists today as a collection of technologies that deliver some interesting solutions today, and will grow rapidly in the coming years into a full-fledged platform (underlined for emphasis in the original memo) that will rival--and even surpass--Microsoft's Windows," Slivka wrote.

Microsoft, however, didn't heed the warning. Instead, it embarked on a strategy--championed by Jim Allchin, who today heads up development of the next version of Windows--that was fanatically focused on the operating system.

Fast-forward 10 years: The nightmare is inching closer to reality and Microsoft execs are apparently paying attention to the decade-old alert. As part of a management shuffle, Microsoft said Tuesday it would make hosted services a more strategic part of the company and fold its MSN Web portal business into its platform product development group, where Windows is developed.

Another memo, called "Google--The Winner Takes All (And Not Just Search)," is also making the rounds. This internal memo, written in 2005, argues that Google threatens Microsoft and the company's crown jewel, Windows.

Just about the only thing that's changed over the last decade is that Microsoft's amorphous nightmare has a name: Google.

The MSN shuffle and that familiar-sounding memo come just as Google is poised to become the biggest threat to Microsoft's hold on the tech industry since Netscape shipped its first browsers. More than a few analysts believe that Google, with its massive array of networked computers and Web-based software, is rapidly expanding beyond its traditional search business and is about to collide with Gates & Co.

Google has about $7 billion in the bank to fund this fight. And it's already stealing the tech limelight from Microsoft--and significant mindshare from developers. Indeed, Google even managed to snag some top employees away from Microsoft, a trick Microsoft performed on its rivals countless times in the 1980s and '90s.

The MSN shift also brings full circle an argument that began inside Microsoft a decade ago: If the Web, not the PC, is indeed the next computing platform, should Microsoft embrace it wholeheartedly, or do everything in its power to ensure that Windows stays at the center of the computing universe?

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