GIANT-KILLER? Microsoft mounts challenge to IBM

History shows that bigger armies don't always win battles. The French lost at Agincourt, as did Napoleon at Waterloo.

And mighty IBM, with its army of about 300,000 employees, is expected to lose a fight with Microsoft's 12,000 employees over who controls the direction of personal computing.


IBM is mobilizing employees to push its new operating-system software, OS/2 version 2, but big sales forces can't force anyone to buy it. The software will have a suggested retail price of $195.

The IBM program will compete with Microsoft's Windows, the $150 complement to Microsoft's MS-DOS. (DOS, used in virtually all IBM-compatible computers, generally comes installed by hardware makers; upgrades are sold through retailers). IBM will try to lure Windows users by selling OS/2 as an "upgrade" for $50.


An operating system is software that controls a computer's internal functions. Applications do specific jobs.

David Rothschild, an analyst with Piper, Jaffray & Hopwood, says few people will want OS/2 even if IBM gives it away. The product is simply not fitted for today's market, and IBM is blind to that reality, he says.

"People at IBM just don't get it," he says.

Even if IBM convinces skeptics that OS/2 is as good as advertised -- a better DOS than DOS and a better Windows than Windows -- IBM must face numerous obstacles, industry analysts say.

First is market momentum. Despite griping over specifics, the computing world has largely followed the path established by Microsoft Chairman Bill Gates.

As 11-year-old DOS shows its age, Mr. Gates is offering Windows, which allows an IBM compatible to be controlled by a mouse, like an Apple Macintosh. OS/2 also works like a Macintosh, but it would have to be very good to get people to move in its direction.

Second is industry support. Relatively few attractive applications are made for OS/2, but many popular programs run on Windows and thousands on DOS. Good software attracts users. Without a strong base of developers, an operating system can't create a market by itself.

Third is industry politics. Microsoft and IBM are viewed with suspicion. Since Microsoft owns the dominant operating system but also wants virtually every software market, software developers see it as a partner and a competitor. Yet IBM carries a dual burden. It must convince hardware manufacturers that it is not trying to use OS/2 to steer users to its hardware, and it must convince applications developers that they would compete with IBM software on a level playing field.


IBM cast a cloud over OS/2 when it announced a joint development project with Apple Computer. The goal? To develop a new operating system for the mid-1990s, which some worry would make OS/2 obsolete. But IBM says the Taligent joint venture will incorporate portions of OS/2 and will not make an orphan of what consumers are being asked to buy.

The confusion played into the hands of Microsoft, which tells the industry that its product is the safe, predictable path for software developers. Software developers don't want to spend money on products for operating systems that might fail.

There are other reasons to give Microsoft the edge, but perhaps the most important is that Microsoft has been most skillful at focusing attention on itself.

A case in point is Microsoft's rollout of its new Windows 3.1 program. Although OS/2 was released Tuesday, hardly any users know that. But chances are they have heard plenty already about the coming of Windows 3.1 to stores April 6.

Like Bo knows sports, Bill Gates knows hype. Mr. Gates recently passed out copies of Windows as it was being shipped to retailers from a warehouse. A corny photo opportunity, but the wire services covered it and Mr. Gates' photo ran in the Boca Raton News in Florida, hometown newspaper of the group developing OS/2. It's hard to imagine IBM Chairman John Akers performing such a stunt.

Microsoft also is telling potential buyers to consider the problems of buying OS/2, which at a minimum requires an Intel 386SX microprocessor, four megabytes of random access memory and up to 28 megabytes for all the features to be installed on a hard drive.


To get users to think twice before buying OS/2, Microsoft suggests that a faster 486 microprocessor is really needed and even more memory. "The hardware requirements are pretty phenomenal," says Joseph Krawczak, a Windows product manager.

Windows is the safe choice, says Microsoft. It needs less memory and disk space and runs on cheaper hardware. The company says its new version of Windows runs faster, offers easier file management and has reduced the problem of system crashes that plagued Windows 3.0.

IBM's key claim for OS/2 is that it runs Windows applications better than Windows can, in effect absorbing Microsoft's technology and the "look and feel" that has made Windows a hit, plus powerful new features. But Microsoft says OS/2 can't do that, in part because Windows is an evolving product. IBM invites users to try OS/2 and see who's right.

But don't completely discount OS/2.

With a push from IBM, the product should gain at least a small share of the market. IBM says it's reasonable to expect that a million or more copies of OS/2 will sell, compared with the 10 million copies of Windows sold.

Lost in this discussion is whether OS/2 is good software.


To see the product demonstrated at Microsoft and IBM is to form radically different impressions.

But OS/2 performs one thing that Microsoft hasn't offered -- a program that can run several programs simultaneously. In other words, a user can start printing a spreadsheet and begin another project without waiting.

Windows can't perform this feat until it breaks free of its DOS limitations. OS/2 is more powerful because it processes information in bigger gulps -- 32 bits, compared with DOS' 16. A bit is the smallest piece of computer data.

OS/2 may surprise people and win some Microsoft customers, particularly in large companies where computers are wired together in networks.

But where Microsoft loses, it also gains. Microsoft collects royalties on OS/2 because it helped write the program before the two companies parted ways when Windows emerged as a competitor with OS/2.