The Software Revolution

8/8/2019 The Software Revolution

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Microsoft and Intel deliver them, and they pay whatever Microsoft and Intel determine theyshould.

What if this cycle could be broken? What if you could find the information you're after withouthaving to take into account what kind of program to use, what computer it runs on, or what kind

of format it's in? What if software as we know it were to disappear? What if software could bereinvented?

Well, that's exactly what's beginning to happen--and at a pace nobody in the computer industryanticipated. The force that's shaking the foundations of the old software business is the Internetand its graphical subnetwork known as the World Wide Web. First, the Internet's TCP/IPcommunications standards made it possible for tens of millions of computers using differentoperating systems and applications programs to ``talk'' with one another--whether they're on alocal-area network or positioned at opposite ends of the globe. Then, the Web's HTML(hypertext markup language) gave all these computers a lingua franca for displaying informationin graphical ``pages.''

FALLING INFORMATION WALLS. In the two years since the Web and the Mosaic programfor viewing its pages emerged from research labs, the Web has turned into a huge virtual disk drive. It's crammed with every possible form of information--from online magazines to digitizedfilm archives to radio programs--all available at the click of your mouse on a blue ``hyperlink.''The same Web document is accessible to anyone with an HTML browser, whether it's on a Unixworkstation, a Windows PC, or a Macintosh. Says Rusty Rahm, president of StarNine Systems, amaker of Web software for Apple computers: `Òn the Internet, nobody knows you're a Mac.''

Suddenly, the barriers that have kept information from flowing between different brands of computers and software have begun to crumble. The next step will be critical: using the Web not

only to make the same information available to all wired machines but to let them share the sameprograms. If that can be done, there will be a basic shift in the software business no less seismicthan the fall of the Berlin Wall. It, too, portends a new world order and vast new opportunities.

The new software order will reflect the character of the Internet itself. Barriers to entry will beminimal: Anybody with a network link can play. Costs of goods sold will be the price of sendingsome bits down the wire. Bloatware blockbusters costing hundreds of dollars may give way tosoftware on demand--snippets of new programming that come across the Net like E-mail. Inshort, the Internet, says Eric Schmidt, chief technology officer at Sun Microsystems Inc.,`ènables the deconstruction and the construction of a new economic model for the softwareindustry.''

WINTEL'S DISCONTENT? What of the old model? In the face of the Web--a truly universalstandard--the prevailing Wintel standard doesn't look so unshakable. And the huge profits thatMicrosoft and Intel get by setting the standards don't look so safe. Since September, thehardware business has been buzzing about low-cost `Ìnternet appliances'' that will challengeIntel PCs.


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Now, Microsoft is in the hot seat. On Nov. 16, Rick G. Sherlund, the influential Goldman, Sachs& Co. analyst, dropped Microsoft from the firm's recommended list, citing slower sales growthin conventional PC software and warning of the rising challenge to the giant from Internetsoftware suppliers. The Web, he noted, ``is a serious threat to Microsoft's ability to set standardsfor important parts of the industry.''

The news of Sherlund's downgrade sent Microsoft shares tumbling 7%, to 87 3/8 in twosessions--and boosted Internet stocks. In an ironic twist, the already white-hot shares of NetscapeCommunications Corp. passed 110 1/2, making company founder James H. Clark the newestsoftware billionaire.

Despite this dramatic reversal on Wall Street, William H. Gates III, the first software billionaire,is not exactly on his way to oblivion. All the Internet software upstarts combined are a merespeck compared with his $6 billion empire. And now, his organization has gotten the Internetreligion--big-time. Gates has made it clear to all his troops that the Net and the Web are nowMicrosoft's highest priority.

All Microsoft's products, from Windows to Word to Excel, are being extended to embrace theNet. Gates's new book, The Road Ahead (page 13), is largely about the Net. And at Comdex, thegiant computer-industry show held in mid-November, Gates used his keynote speech to sketchout ways in which Microsoft plans to build a new set of Net software on top of its existingprograms. ``The Internet is nothing but good news for software,'' he said. ``When you get low-cost communications, you want more software to help people share information and collaborate.It means the PC is a more relevant device to a broader set of people.''

Gates's challenges may be more structural and managerial than technical. Microsoft finds itself in a position similar to that of IBM a decade ago, when the PC revolution began threatening the

mainframe business: Even as he tries to move into the new market, he can't afford to let up onefforts to stay on top of the old industry. Operating systems and packages such as MicrosoftOffice are where all the revenues are now--and the source of the 85% gross margins that supportthe massive organization. What's more, Gates concedes that having the lead in PC software maynot land him near the top of the new order. ``We're in a business where no amount of successguarantees future success,'' he says.

Meanwhile, thousands of programmers and computer designers are racing to prove that on theWeb, there's a better way--a chance to end software lock-in forever and perhaps make bloatwareobsolete. The breakthrough technology? It could be a programming language from SunMicrosystems called Java.

Once a computer--no matter what brand--is equipped with Java ``client'' software, it can run anyJava application that comes across the Net. Click on a hyperlink to your bank to check loan ratesand you'll get the data as well as a Java ``applet,'' a special application program to calculate whatyour monthly payments would be for different amounts and different loan lengths (page 82).Soon, little Java programs may hit your PC the way E-mail does. ``The Web turned the Internetinto a giant disk drive,'' says Mark Pesce, a San Francisco creator of Web software and a Javaenthusiast. ``Java turns the Internet into a giant processor.''


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JAVA'S MASSIVE BUZZ. Java embodies two key attributes of the new software business. It isdesigned specifically for the Net, and it is an object-oriented programming tool, based on theobject language C++. Object technology turns conventional software on its head. Since theearliest days of computing, programs and data have been rigidly separated. The financialinformation you want to assess and the program that does the number-crunching are completely

independent, yet useless without one another. With object technology, information andprogramming are merged. These ``objects'' behave the way objects in the real world would: Onecalled ``checkbook'' might tally up your checking account, for example.

Object programming is ideally suited for the Net era--when computers will function more asmultimedia communications devices and less as glorified calculators and typewriters. Withobjects, information comes to the forefront, and the program that places it on your screenrecedes. ``The result of this is that software takes its place as a means rather than an end,'' saysClifford J. Reeves, director of IBM workgroup architecture.

While Java is generating a massive buzz in the computer industry, it is just one of many new

programming schemes that have suddenly become practical on the Web. Steven P. Jobs's NeXTComputer Inc., for instance, is reorienting its object-programming software for the Net. ``Thetwo most exciting things right now in software are objects and the Web,'' says Jobs. IBM andApple Computer Inc. have been promoting a distributed-object scheme called OpenDoc. Apple isnow working on technology called CyberDog that lets developers link OpenDoc objects to theInternet. And separately, IBM is developing a framework for embedding different types of objects in Web documents.

There will be Java rivals, too. While considering licensing Java, IBM is working on its own``Web-executable'' language. It's a combination of a new programming language called Bart andLotusScript, the development software that will ship with an upcoming release of Notes, IBM's

Lotus subsidiary's groupware program. Netscape--which will bundle Java into the next release of its Navigator browser--has its own language, called LiveScript. It's based on Java, but easier touse. And Microsoft says it will have a Java equivalent in its Visual Basic language--once that isadapted to the Net.

From tiny one-person shops to startups staffed by prominent Silicon Valley executives, the Net isteeming with new Web software companies. Most wouldn't have a prayer in the conventionalsoftware market. But the Net represents a green field where no software maker dominates. ``TheInternet changes everything,'' says J. Neil Weintraut, managing director for technology researchat Hambrecht & Quist Inc.

Start with something as simple as distribution. Today, software makers spend huge sums to crank out disks, put them in appealing packages, and move them through wholesalers to store shelves.Then, they spend millions more on advertising to get customers to go into the stores and buy. Onthe Web, a customer simply clicks a few onscreen buttons, and the software comes back acrossthe line. When there is a new version of software, ``you turn on your network computer and itwill show up. There is no store to go to. There is no installation,'' says Ellison. Today, it can takeanywhere from several minutes to several hours to download a program, but high-speedcommunications will make electronic distribution more practical.


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The way you pay for software will change, too. Instead of paying a one-time license fee, whichentitles you to perpetual use of a program, you may pay for software the way you pay for amagazine. For example, software companies may offer subscriptions that, for an annual fee,entitle you to unlimited usage and the latest updates to a program or group of programs. At thesame time, all sorts of network services--stock quotes, digital photo archives, bill-paying

services, and the like will be delivered online, along with software to use them. ``What you'rereally selling is a service fielded over the Internet--the software comes for free,'' says JohnLandry, a former Lotus executive and now an IBM consultant.

Eventually, all we'll think about is the content--we'll assume the software is there. ``The linesbetween content and applications are blurring,'' says Marc Andreessen, the 24-year-oldprogrammer who helped dream up Mosaic, the original Web-browsing software, and is nowvice-president for technology at Netscape. Helping the process will be Java and other Web-programming systems that make it possible to ship ``interactive content'' across the Net. Anexample might be an electronic catalog that includes a Java applet for ordering. When you hit the``buy'' button, the program will execute on your computer--then vanish when the transaction is

complete. Scott McNealy, Sun's CEO, calls it disposable software.Bloatware, on the other hand, is just about the opposite: It's big, it's not cheap, and it requires along-term commitment. And because of these characteristics, the biggest companies are almostguaranteed to win the bloatware game. After an investment of thousands of programmer-years of effort, Microsoft or Lotus or WordPerfect brings out a new, bigger release--loaded with featuresthat most customers will never use, such as math equation editing. The latest Microsoft Officesuite, for example, needs 55 megabytes of disk space and a Pentium-class computer to run atpeak form. And installing these hefty programs has become a drawn-out affair.

For corporations, this has helped push the annual cost of supporting a PC user to about $8,000,

according to consultants Gartner Group Inc. Increasingly, corporations are weighing the value of upgrading software every two years or so. This year, many corporations are taking a go-slowapproach to Windows 95 because of the huge costs of upgrading. ``Customers can't afford to beon this treadmill of bigger, better, faster,'' says Mark A. Tebbe, president of Lante Corp., asystems integration company in Chicago. Adds Thomas P. Kehler, CEO of Internet softwaremaker Connect Inc.: ``The software industry has been arrogant.''

The Web may be the method to stop this madness. Instead of waiting two years for the nextmassive update to your favorite office suite, you may get the latest features instantly off the Net.Or, instead of buying a program you may only use occasionally, you may be able to rent it. Thecode will come across the Net and will be usable for a specified period. Think of it as just-in-time software.

The same concept may also extend to operating systems--with serious consequences for howhardware is designed. If schemes such as Java catch on, computers might no longer need ever-bigger operating systems--or the expensive Intel chips they use today. Low-cost Internetappliances, perhaps based on video-game players, could get by on simple, streamlined operatingsystems that call out to the Net for additional features as needed. ``I see the PC going through


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this era of complexity and back to simplicity,'' says Ronan D. McGrath, chief information officer for Canadian National Railway Co. in Montreal.

It's an idea that has a lot of appeal in Silicon Valley--not least because it has the potential to undothe dominance of the Wintel standard. One of the most fervent supporters of the idea is Oracle

CEO Lawrence J. Ellison. Oracle has developed an operating system that takes up just 1megabyte of main memory, Ellison claims, vs. as much as 8 megabytes for Windows 95. He saysthe program will be given away by Internet services providers and built in to computers andconsumer-electronics gadgets by next summer. After that, says Ellison, it's downhill for the PC.`Ì really think that Windows 95 marked the zenith of the personal-computer industry.''

`À DARWINIAN DEVICE.'' Ellison is also a big backer of Java, which is built into the plannedOracle operating system. He says the new setup will have special appeal for corporations thatwant to cut PC support costs. Improvements to the software will simply show up across the Net.``We're talking about enormous savings of not only dollars but time,'' he says.

Predictably, Intel CEO Andrew S. Grove dismisses the notion that masses of customers will giveup their Pentium PCs for cheap Internet cruisers. In fact, he says, those PCs helped make the Netso popular. ``Where the hell was the Internet before there were 30 million multimedia PCs outthere?'' he demands. The PC, he adds, is `à Darwinian device'' that will adapt, as it always has.Indeed, even if somebody can produce a $500 I-way Yugo, there may not be many consumerswilling to give up all the other things a $1,500 PC can do to buy it.

Grove, whose management mantra is to stay ``paranoid,'' may be better prepared for a fight thanhis Wintel partner. A quick switch to a software market of cheap network applets could quicklyturn Microsoft's size advantage into a millstone. Its sprawling 18,000-employee organizationmay be the most potent software-development force on the planet, but it is also the world's

biggest bloatware factory--which needs megahits, not lots of cheap applets, to survive.

THE SOFTWARE REVOLUTION--Part 2

The Internet changes everything. Coming soon:Cheap, Web-ready mini-programs. No wonder

the giants are jumpy Continued from Part 1

FED UP WITH THE MANIA. Microsoft, too, may be a prisoner of its own success. With aninstalled base of 100 million computers running Windows, the company puts more and moreresources into keeping new versions of the program compatible with previous ones.

In Win95, a big chunk of the 15 million lines of code are there just to ensure compatibility.


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The new competition has no such baggage. Java--and programs like it--are `à direct assault onMicrosoft's whole paradigm,'' says Robert Aston, president of market researcher Market Visionin Santa Cruz, Calif.

Leading the assault, Sun is busily seeding the Java software market. It's selling Java licenses at

$125,000 a crack--and downloading free HotJava browsers with Java clients to workstation andPC users on the Net. Licensees include Oracle, Macromedia, Toshiba, Borland, and Spyglass.Sun is also making Java freely available for research, education, or evaluation purposes.

The Java mania grates on Gates. ``What's new about [Java] vs. other programming languages?Why is BUSINESS WEEK writing about Java?'' he says. ``Just having another computer language doesn't change the dynamics of any of these things.'' But Doug Henrich, Microsoft'sdirector of developer relations, says the company `ìs looking hard'' at licensing Java, since themarket is clamoring for it.

For now, Microsoft is racing to get its own Web software going. It's pushing Visual Basic as the

programming language for developing Web applications. A complementary software scheme,called Object Linking & Embedding (OLE), lets developers create objects--say a spell checker--that can be moved from one program to another. Originally designed for use on stand-alone PCs,OLE is being extended to operate across networks--no easy task. Blackbird, the proprietary`àuthoring'' tool originally designed to create multimedia content for the Microsoft Network, isbeing reworked for the Web.

Because its tools are already used by thousands of developers who have invested hundreds of hours learning the intricacies of Windows software, Microsoft can be assured that many willfollow it to the Internet. There is already a thriving market for ready-made Visual Basic and OLEobjects, such as spell checkers or chart objects, that developers can drop into their programs.

Microsoft would like to extend those to the Net--before another scheme catches on.At this point, Wall Street is betting on the challengers. The stories (often exaggerated) of Java'spotential--along with a booming market for Web servers--has helped Sun's stock more than triplethis year since June. Netscape's shares continue their gravity-defying rise, reaching a new high of $120 on Nov. 20. That gave the startup--with projected sales of $47 million this year--a marketvalue of more than $6 billion, exceeding that of $11 billion Apple Computer.

No wonder Netscape is providing the business model for the new software industry. It won 70%of the browser market by giving its product away on the Net. Now dozens of startups are doingthe same. Take Progressive Networks Inc., a Seattle-based startup that makes software for delivering real-time streams of audio over the Net. The company's Real Audio player--which isneeded to play the sound clips--can be downloaded for free from links to dozens of Web sites.``The marching orders are: Get big fast, subjugate profit--even revenues. Just get your productout there,'' says Hambrecht & Quist's Weintraut.

How will these strategies ever pay off? Netscape has started to sell Navigator for $40 in stores,and bulk sales to corporations helped it turn its first profit--ahead of schedule--in September. But


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the master plan is to cash in by selling the lucrative ``server'' software that companies use tocreate and run Web sites.

SEEDING THE BROWSER MARKET. In its own way, Netscape hopes to gain the type of leverage on the Web that Microsoft has with the Wintel lock-in. Having seeded the market with

millions of Navigator browsers, it is feverishly adding extensions to the HTML standard so thatWeb pages programmed with Netscape software will look their best only when seen with theNetscape browser. Anybody can use the extensions, but by the time they do, Netscape will beadding something else. That creates the potential for locking in operators of Web sites with theNetscape server. ``When you see a Web page that says Netscape 1.1-enhanced, you're looking atthe value of Netscape's stock,'' says David Winer, a veteran software developer andcommentator.

Not to be out-Microsofted, developers there are working on their own browser and server software. The browser, called Internet Explorer, has been available since shortly after the Augustrelease of Windows 95, as part of an add-on package called Microsoft Plus! And it has been

shipping with new Windows 95 PCs. A new version, Explorer 2.0, is now available. LikeNetscape, it includes proprietary changes to the HTML format to enhance graphics and improveperformance--and plant the seeds of software lock-in.

Microsoft could afford to lose the browser market. But it's determined not to give Netscape thestrategically important server business. It is testing a Web-server program, dubbed Gibraltar, thatit expects to release early next year. Gibraltar is based on the two-year-old Windows NT butadds features for handling HTML documents. Another product due next year, called Catapult,will add security features. The server market, expected to zoom from just $20 million this year to$300 million by the end of the decade, ``is much more up for grabs,'' notes Sherlund.

Like its new competitors, Microsoft is giving away software to get a position in the Web market.Some 500,000 copies of the Internet Assistant, a program that converts Microsoft Worddocuments to HTML, have been downloaded free from Microsoft's Web site. In addition,Microsoft just came out with Word Viewer, a freebie for viewing or printing Microsoft Worddocuments on the Net without having Word installed on your PC.

Microsoft isn't the only software maker to feel the effects of the Net software revolution. Lotus,now an IBM subsidiary, is furiously attempting to adapt its information-sharing Notes programto the Web--before cheap Web-based products displace it. Lotus is trying to convincecorporations that Notes offers more than they can get with simple Web tools. It's also addingfeatures to smooth the flow of information between Notes and the Web and to let the Notes``client'' view Web information. A likely next step: drastically cutting the price of the Notes``client'' software.

``RECREATING WINDOWS.'' As the old gang learns new tricks, so do the newcomers. Thenext version of Netscape Navigator 2.0, due in December, will include tools for developing Webapplications, E-mail, and workgroup software gained from the company's purchase of CollabraSoftware. In addition, Netscape will bundle ``plug-in'' programs, including Java, Adobe'sAcrobat document viewer, and the Real Audio player. Netscape is also exploring other areas,


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including such applications as word processors. The danger: In its attempt to be more likeMicrosoft, Netscape could succeed--in the wrong ways. ``Pretty soon, you end up recreatingWindows,'' says Sherlund.

So who will come out on top in the new software business? Perhaps no single company. If the

Web revolution really creates a level playing field, then the days when a few giants call the shotscould be gone forever. Let the games begin.

It's Everyware!

The Internet and its World Wide Web have created an infrastructure for delivering information tocomputers virtually anywhere. Now, the same thing is happening to software, thanks to Webprograms such as Sun Microsystems' Java. The result: A revolution in software.

SOFTWARE TODAY

HARDWARE LOCK-IN: Programs written for a specific type of computer ``platform'' lock customers into hardware that runs the software they need. The ``Wintel'' standard (Intel-basedPCs using Microsoft Windows) gives a wide choice of PC brands. But customers are locked in tothe Wintel platform.

UPGRADE TREADMILL: Every two years or so, applications and operating-systemsdevelopers trot out upgrades and cram in new features that push the limits of hardware. Tohandle a major upgrade such as Windows 95, millions of customers are forced to replacecomputers that still work perfectly well.

DISTRIBUTION: Today, software comes loaded on the hard drive of your computer when you

buy it or in a box from a software store. This complex distribution chain adds to cost and oftenforces consumers to buy more than they want.

BLOATWARE: Packaged software--programs such as word processing packages--havemushroomed into ``bloatware.'' They're huge--some more than 50 megabytes--slow, andcrammed with features that most people never use.

IN THE INTERNET FUTURE

HARDWARE-INDEPENDENT STANDARDS: A package written using a Web-compatiblesoftware language, such as Java, will run just as well on a PC as on a Mac--or on a future

Internet appliance.SOFTWARE ON DEMAND: In the networked era, computer buyers can jump off the upgradetreadmill. Instead of waiting for the creator of your favorite program to add a key feature or fix aflaw, you can buy it on the Net from the software supplier--or an enterprising competitor--assoon as the improvement or patch is ready.


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OBJECT TECHNOLOGY: Java and other new programming systems are ``object-oriented,''which means that data and the software needed to use them are merged into so-called objects. Anobject called ``quarterly sales,'' for example, might have the data and the programming needed toconstruct a bar chart.

APPLETS: Forget bloatware: You'll be able to purchase (or even rent) little bits of software for specific tasks as you need them. Many applets will be object-based and may be intended for aone-time use only--say, an applet for ordering a free sample from a publisher over the Internet.

The Shifting Balance of Power

WHO MAY WIN

NETSCAPE: Its Navigator browser could become the Windows of the Web.

SUN: Java is gaining a fast following among programming's vanguard. The challenge: Turn Java

into a moneymaking business.

SMALL DEVELOPERS: Using the Net to distribute software opens the market to smalldevelopers that could not crack the old business.

WHO STANDS TO LOSE

MICROSOFT: The software giant has the most to lose if it can't extend its influence to the Web.

IBM/LOTUS: The Internet provides a low-cost way to do many of the basic tasks performed byLotus Notes. A Net-friendly Notes is a must.

RETAILERS: Some consumers will continue to shop in stores, but more and more software willbe distributed over the Net.

By Amy Cortese, with John Verity in New York, Kathy Rebello and Rob Hof in San Francisco,and bureau reports

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The Software Revolution