Microsoft Corp - Intense Growth As A Software Manufacturer

INTENSE GROWTH AS A SOFTWARE MANUFACTURER

Several major products were developed in 1983. Microsoft Mouse, a small hand-held device used to manipulate a cursor on a computer screen was shipped early that year. In September, the firm unveiled its first word processing program, called Microsoft Word. Although the program did poorly in the U.S. at first, European sales were strong. Also, in perhaps its most important product launch ever, Microsoft introduced a new program, called Windows, in November. Based on the MS-DOS operating system, Windows offered users a graphical user interface (GUI). Within one month of its launch, more than 500,000 copies of Windows had been sold. Revenues reached $70 million, and international expansion was fueled with the establishment of units in France and Germany.

Microsoft began developing software, including a version of Microsoft Word, for the Apple Macintosh computer in 1984. By then, roughly 200 microcomputer manufacturers had licensed MS-DOS. Microsoft Word's popularity in the U.S. increased, and the firm began selling nearly 20,000 copies per month. In 1985, Microsoft opened its first international manufacturing plant in Ireland. By the end of the year, the firm had started distributing Windows to retailers for sale to consumers. Microsoft spearheaded an alliance with IBM's competitors—including Compaq, Hewlett-Packard, Texas Instruments, and Digital Equipment—in an effort to undermine IBM's monopoly on PC standards development. As a result, IBM began to work with Microsoft's competitors on software programs. Despite its increasingly rocky relationship with IBM and the fact that several problems had emerged with the earliest version of Windows, Microsoft convinced IBM to use an upgraded version of Windows on its next line of PCs.

In February of 1986, Microsoft moved its headquarters to Redmond, Washington. One month later, the firm conducted its initial public offering, offerings its shares at $21 each. The IPO raised $61 million in capital. Within a year, shares were selling for $84.75, making the 31-year-old Gates a billionaire. A third version of Microsoft Word was released, and it soon became Microsoft's best selling product. The Windows-based spreadsheet software known as Excel was introduced in October of 1987.

Apple Computers filed a lawsuit against Microsoft in 1988, alleging that the firm had used the appearance of the Macintosh operating system as the basis for its Windows program. Apple's lawyers requested that Microsoft either pay royalties or stop simply selling Windows. By then, Microsoft had grown into the leading U.S. maker of PC software and had also diversified into network software. By the end of the decade, revenues had neared the $800 million mark, and more than two million copies of Windows 3.0 had been sold. Employees totaled roughly 4,000.

Revenues exceeded $1 billion for the first time in 1990. The firm's relationship with IBM worsened, resulting in a price war between Microsoft's DOS 5.0 and IBM's competitor to DOS, OS/2. In 1991, in what was viewed by many analysts as a plan to wrest market share back from Microsoft, IBM and Apple forged an alliance to develop a new operating system that would not only make computers easier to use, but also facilitate compatibility between IBM and Apple machines. By then, roughly 90 percent of worldwide PCs used the MS-DOS platform, and Apple had broadened its litigation against Microsoft. In 1992, the firm diversified into desktop publishing software and launched its first television commercial. Microsoft won the case against Apple after a judge decreed that the appearance of the Macintosh operating system was not protected by Apple's copyrights; therefore, Microsoft's Windows platform, though very similar to Macintosh in appearance, was not in violation of copyright law. Apple appealed the decision.

By 1993, Microsoft had a market valuation of $25 billion. The Microsoft Encarta multimedia CDROM, which housed all 29 volumes of Funk & Wagnall's New Encyclopedia, including graphics, was awarded the Consumer Disc Product of the Year. The firm also launched Windows NT, an operating system for the network servers of large corporations. Microsoft's meteoric growth brought with it increased scrutiny and continued legal troubles. For example, after receiving complaints regarding alleged unfair and monopolistic trade practices by Microsoft, the U.S. Department of Justice launched an investigation of the firm. In 1994, to resolve the ongoing antitrust investigation, Microsoft volunteered to change its marketing tactics, a proposal the Justice Department accepted. However, critics of the settlement asserted that it did nothing to address several of the firm's alleged anticompetitive activities. As a result, U.S. District Judge Stanley Sporkin agreed to revisit the settlement.

To compete with Navigator, a World Wide Web browser released by upstart Netscape Communications Corp. in September of 1994, Microsoft licensed technology from Spyglass in an effort to speed its own browser to market. The firm also unveiled its Windows NT BackOffice suite, which bundled various server applications, such as SQL Server. Sony Corp. and Microsoft began jointly developing multimedia software and hardware in early 1995. The Supreme Court refused to hear Apple's appeal regarding the case against Microsoft; however, Microsoft's legal woes continued when Judge Sporkin ruled that the Department of Justice's antitrust settlement with Microsoft failed to address two key issues: licensing policies for computer operating systems and non-disclosure agreements. In response, the Department of Justice and Microsoft both filed appeals. Eventually, the U.S. Court of Appeals reinstated the initial settlement. In April, Microsoft's plan to acquire Intuit Inc. for $2.1 billion was blocked by the Justice Department due to antitrust concerns.