Seattle -- Late last December, one of Microsoft's senior managers spotted an article in the computer-trade press and suddenly felt ill.

On the front page of InfoWorld was an article revealing glitches in a new version of Microsoft's word-processing program, Word for Windows. Chris Peters, general manager of the Word business unit, lost his appetite and couldn't sleep for three days. It ruined his Christmas.

"I take this stuff personally. It's my life," Mr. Peters says.

With an attitude like that, it's no wonder Microsoft is succeeding. But it is more than that. Microsoft is becoming for software what Boeing is to aerospace -- the industry's dominant force.

"Microsoft is now on the verge of capturing the leading position in word processing and spreadsheets, the two biggest applications businesses," says Dain Bosworth analyst Glenn Powers.

To examine Microsoft's handling of its word-processing program, Word, is to see how Microsoft succeeds. Microsoft combines astonishing marketing clout with the determination to make its products the best. And perhaps key to it all is the direct involvement of Chairman Bill Gates, who remains involved in all aspects of the 10,000-employee company he co-founded.

At 33, Mr. Peters is almost fanatically dedicated to quality. Like Mr. Gates, Mr. Peters' casual dress, boyish grin and at-ease body posture masks a fiercely competitive personality. Don't be fooled by the squirt gun, cowboy hat and Coke cans that clutter his office. At his relative young age, Mr. Peters is a dedicated executive, leading a group of 160 people assigned to Word.

Sales of Word last year generated $354 million in revenue for the Redmond, Wash.-based company. That figure should hit almost $1 billion by 1995, according to a projection by analyst Michael Kwatinetz of Sanford C. Bernstein & Co. Five years ago, Word was a small player in the word-processing market, ranked fifth in a field dominated by WordPerfect, a product of the WordPerfect Corp. of Orem, Utah.

Today, Microsoft's Word is ranked a distant second in revenue and market share behind WordPerfect.

Bit by bit, Microsoft has gained ground -- largely at the expense of companies other than WordPerfect. Now Microsoft has publicly targeted WordPerfect's customers and the battle is being fought on terms increasingly favorable to Microsoft.

With Microsoft beginning its first national TV ad campaign this month, the battle will be viewed in America's living rooms. Don't be surprised if the ads remind you of the cola wars. Microsoft is already pushing a "Word Challenge" comparison claiming that users allowed to "taste" both programs chose Word over WordPerfect.

Many different word-processing programs are available, but analysts are focusing on those made by Microsoft, WordPerfect and Lotus Development Corp., which officially list at $495 but are deeply discounted at stores. The three industry giants have sharply contrasting personalties:

* Microsoft. The big gorilla. Feared and respected. Big budget for advertising. Led by Mr. Gates, who is legendary for crushing opponents and ousting executives who don't meet his expectations. Difficult place to work for people with families.

* WordPerfect. Strong competitor. Does little advertising. Warm and cuddly. Led by President Alan Ashton, who is described by employees as a grandfather figure. Employees told to spend time with families.

* Lotus. Based in Cambridge, Mass. Less than 3 percent market share but riding a winner called 1-2-3, a pioneering spreadsheet program that now shows its age. Led by Chairman Jim Manzi, an ex-journalist who says he has no personal dislike for Mr. Gates but hasn't spoken to him in three years. Unable to develop internally a dominant product for word-processing, Lotus bought Samna Corp., the Atlanta company that developed the Ami Pro program.

From DOS to Windows

To understand the battlefield and how the advantage may be going to Microsoft, certain computer lingo must be defined.

Without an operating system to control its basic functions, a computer is just a paperweight. An application runs on the operating system and performs specific tasks, such as spreadsheets or word processing.

Virtually all IBM-compatible computers use the MS-DOS operating system, a Microsoft product that is used by 100 million people. Since 1981, MS-DOS and its upgrades have been a cash cow for Microsoft. The money has helped finance development of applications, a huge advertising budget and a successor to MS-DOS called Windows. A best-seller but so far lacking the universal acceptance of MS-DOS, Windows allows a user to control a computer with a mouse pointing device.

Many analysts and software companies share Microsoft's belief that the future of computing is Windows, not competing systems offered by IBM or Apple Computer. Thus the next generation of software, like the first, will be run on an operating system controlled by Mr. Gates, who is using his company wealth and personal influence to push the market toward Windows.

The Federal Trade Commission is investigating whether Microsoft's dominance of operating systems has given it unfair advantages in the competition to write applications. Microsoft denies any wrongdoing. But clearly, Microsoft has benefited from the growing acceptance of Windows.

At great cost, Microsoft wrote applications for Windows before most others and now enjoys a major strategic advantage.

WordPerfect captured its market share with an MS-DOS product that was hard to learn but powerful. With the switch to Windows, however, users are being presented with an entirely new and much easier way to control a computer.

(Microsoft learned how to write Windows-style programs by developing software for the Apple Macintosh computer. Microsoft dominates the Macintosh market, which represents about 15 percent of personal computers. Whether Windows is an illegal copy of the Macintosh is the subject of a lengthy lawsuit between Microsoft and Apple.)

Many customers will stay with DOS. And indeed, the DOS market will remain the largest market for years to come. That likely scenario favors WordPerfect, at least for the short term. "The DOS market is WordPerfect, WordPerfect and Word," says Neal Hill, senior analyst with Forrester Research Inc.

Still, Windows is viewed as an exciting development that makes computers easier to use. Microsoft has sold about 9 million Windows copies. Sales of Windows is expected to grow as more programs for Windows become available.

Because WordPerfect delayed entering the Windows market, Microsoft has several more years of experience and market presence. Microsoft now is selling a second-generation Windows program, while WordPerfect is selling its first. (Microsoft has sold a popular version of Word for DOS for several years.)

Adding features

Prodded by Mr. Gates, Mr. Peters and his division work hard to make sure Word is competitive. In the past, Microsoft added features to Word without much regard to how easy or desirable such functions were to most people. Today, Microsoft closely studies how people use Word and is constantly using that research to gain an edge in the market.

For example, Microsoft learned from its calls to customer support that people were confused about how to merge a list of names to a form letter. Click "Print Merge Helper" and the program walks you through the process.

Microsoft engineers also spent 10 months working on elements that would assist WordPerfect users in switching to Word. The idea was to reduce the hassle of learning a new program. Typing a WordPerfect command automatically creates a screen that demonstrates the equivalent Word command.

And Mr. Gates, widely regarded as a marketing whiz, insisted hTC that the new version of Word contain an editing function called "drag and drop." Engineers told him they didn't have time before the scheduled release. Mr. Gates said make the time, and now "drag and drop" is featured in company advertising.

WordPerfect is confident that its customers will remain loyal, but Microsoft is relentless, saturating trade publications with advertisements for Word.

With so much money riding on the outcome of the competition, it's not surprising that competitive rhetoric gets overheated with Microsoft as subject.

"They're aggressive and very competitive. They attack us right to the quick," says Liz Tanner, a WordPerfect spokeswoman.

Rumors circulate that Microsoft's sales force bad-mouths the competition. That's not surprising, given Microsoft's advertising approach. Mr. Peters, however, says the company's sales force does not report to him, but "you don't win by bad-mouthing people."

"Sometimes they don't play fair and say things that aren't really true. But I'm going to stop at that," says Ms. Tanner, the spokeswoman for WordPerfect, which she describes as the nice guys in this contest.

+ But don't they finish last?