Let's face it, anyone who hasn't been living in a cave since the mid-80s knows what Microsoft is. There's a decent chance that every paper you wrote in college or grad school was typed on one of its programs, probably on a computer running on a Microsoft operating system. If you'd invested 20 bucks in the company 11 years ago, you'd be worth more than the annual GDP of a mid-sized country in Africa. Bill Gates, the co-founder of Microsoft, is the richest man in America.

Leader in applications

Microsoft was the first software company to bundle its applications into a single suite, taking Microsoft Word, Excel, and PowerPoint, and marketing them in the package deal known as Microsoft Office. Not a bad idea - Office now accounts for about 30 percent of the company's revenues. Microsoft released the next version, Office 2000, during the first half of 1999. Stepping up its efforts to compete with industry leaders Oracle and Informix, Microsoft has launched the SQL Server 7.0 to boost the already growing success of its BackOffice product line. And it has released Windows 2000, its operating system designed especially for businesses, which has already beaten sales expectations and quieted Microsoft's always vocal critics.

Loosening the purse strings

One of Microsoft's greatest assets is, well, its assets. With profits in the billions, and one of the largest market caps in the country, Microsoft has a great deal of freedom to pursue new business interests. CEO Bill Gates is now flexing his monetary muscles with an amazing acquisition spree that has spanned the past few years and shows no sign of letting up. Since 1995, Microsoft has bought a $1 billion interest in Comcast; a 15 percent stake in UUNet, an Internet service provider; a 5 percent stake in VDONet, an Internet video company; 10 percent of Progressive Networks, a Web-audio company; and WebTV Networks in its entirety, a purchase worth $425 million. In 1999, Microsoft invested $5 billion in AT&T and struck a deal with the cable giant whereby it promises to use Microsoft's software in its television set-top boxes. The two will work together to run market tests of new digital cable services.

Threats to Microsoft's dominance?

Such impressive figures do not mean, however, that Microsoft has no difficulties yet to overcome. One of the biggest threats to Microsoft's future is the pesky Java Internet software language created by Sun Microsystems. Designed to function with any operating system (or "platform"), Java breaks programs up into small "applets" that allow for swift Internet transmission. This would allow centralized servers to do much of the work currently handled by installed software (a.k.a. Microsoft's bread and butter). At the same time, new applications software is being programmed for Java because it is multi-platform. Gates may live to rue the day in 1995 when he announced that Microsoft would be Java-compatible, in order to fight the relatively small threat of Netscape, the same way that IBM probably regrets allowing MS-DOS to be licensable to PC-clone producers. Now Sun is suing Microsoft over the company's use of Java in its 4.0 version of Internet Explorer, claiming that Microsoft's program fails its compatibility tests. Microsoft has apparently had enough coffee, er, Java for now, as it let its licensing of Java technology from Sun expire early in 2000. Microsoft is also facing increased competition from Linux and Unix, two other operating systems, which have become popular for their ease of use but also for a more cynical reason - they aren't made by Microsoft.

U.S. v. Microsoft

To Gates and laissez-faire capitalists everywhere, a far stronger challenge is coming from the United States government. In May 1998, the Department of Justice and a coalition of 20 state attorneys general charged Microsoft with engaging in monopoly business practices in violation of antitrust laws. By integrating any new technological innovation into Windows, contended the DOJ, Microsoft unfairly limits competition. The suit claims that by incorporating its Office suite into the operating system, and then making it financially impractical for PC manufacturers to include a rival product, Microsoft did just that.

Judge Jackson finds for the government...

In November 1999, Judge Jackson ruled that Microsoft had abused its position as a monopolist and had violated antitrust laws in its treatment of business partners. Most damagingly, Jackson also found that Microsoft's actions were harmful to consumers. Microsoft bundled its Internet Explorer with Windows software, Judge Jackson found, thereby using its monopolist power to damage rival Netscape Communications. Jackson rejected Microsoft's argument that the browser is integrated into Windows 98, and that removing it will cause damage to the operating system.

In April 2000, the Department of Justice moved to make public its plans for splitting Microsoft into two distinct companies; invoking, in part, the 1982 divestiture of AT&T as justification for their plan.

...and Microsoft finds it unfair

Of course, Microsoft found the news of its impending demise to be greatly exaggerated. The company stated that the government's unprecedented regulatory scheme is unjustifiably punitive and would be a major setback for the American economy and consumers. The company also said that the government's proposal threatens a core principle in the American economy: that businesses are encouraged to compete by creating innovative products that respond to the marketplace and consumers. The DOJ quickly rebuffed all restructuring proposals offered by Microsoft, stating that they will do nothing to stop Microsoft from violating antitrust law. The DOJ further stated that it will continue to work towards splitting Microsoft into two separate companies. Stay tuned, this fight is far from over.

First Round: Government!

On June 7, 2000, a U.S. District Court Judge Thomas Penfield Jackson ordered Microsoft to be split in two in a ruling aimed at preventing Microsoft from committing further antitrust violations. The judgment was warranted, Judge Jackson said, because despite warnings and earlier court decisions admonishing Microsoft's business dealings, "Microsoft has shown no disposition to voluntarily alter its business protocol in any significant respect." Under the terms of the ruling, the company is to remain intact until the appeals process is exhausted - and Microsoft has vowed to appeal all the way to the Supreme Court if necessary. If the judgment is upheld, it would be the harshest antitrust action taken against a U.S. corporation since AT&T agreed to spin off the "Baby Bell" regional phone companies in 1982.

While appealing the judge's verdict, Microsoft will ask a higher court to stay all of the remedies during appeal. If the request for a stay is rejected, Microsoft must begin complying with the restrictions on its conduct by Sept. 7 and must also submit a detailed plan for dividing the company in two by Oct. 7 - which gives the company precious little time to get its dealings and exact plans straightened out. In the wake of the breakup, one of the resulting companies would have the Windows operating systems, while the other would hold everything else, including Microsoft's Internet businesses and applications software. Taking current-year figures as a measuring stick, the operating-system business would hit the ground running with about $10 billion in revenues while the applications business would have about $13 billion. The judge's order says the actual breakup will be stayed during appeals, and Judge Jackson is encouraging the Justice Department to take the appeal directly to the Supreme Court, under a 1974 revision to the antitrust laws allowing fast-track consideration of significant antitrust cases. Whether the court would take the case is uncertain. What is certain, however, is that is case is nowhere near a resolution.

Remaking a giant

In 1998, Gates made longtime friend Steven A. Ballmer president of Microsoft so he'd have more time to concentrate on technology. Nine months later, Ballmer announced a total overhaul of Microsoft's corporate culture. The move was in part a response to growing frustration among Microsoft's workforce regarding bureaucracy. Before the overhaul, every decision from upgrades to response records for customer support lines was made by Ballmer and Gates. Now, upper management has a much freer hand in the decision-making process.

In January 2000, Gates stepped down from his position as chief executive of Microsoft and handed the job over to Ballmer, saying that he wanted to return to what he loves most - "focusing on technologies for the future." Gates will remain chairman and will take on the new role of "chief software architect," and will spend most of his time promoting and fine-tuning the overwhelmingly successful Windows 2000 operating system. Analysts have posited that Gates' frustration with the government antitrust trial was also a motivating factor in giving up the reins.

On the development side, Microsoft also restructured its product development groups. Previously, product divisions were split along technology lines, one for applications and one for operating systems. There was little distinction based on customers, so features were the same for power users and newbies. Under the new structure, divisions are along customer lines such as corporate leaders, cybershoppers and software developers.

Microsoft has teamed up with Andersen Consulting to form a new company called Avanade. This company will provide consulting services aimed at selling the Windows 2000 operating services. Microsoft is looking to become the top operating system for Fortune 500 companies. The deal is believed to be valued at over $1 billion.

Look out

In May 1999 Microsoft spent $5 billion for a minority stake in AT&T. Under the terms of the agreement AT&T will use Windows CE in its set-top cable boxes. AT&T's acquisition of MediaOne has made MaBell the biggest cable provider in the country. The deal is similar another May 1999 agreement with number four cable company Comcast for $1 billion. Both deals position Micrsoft for the anticipated cable internet access boom.

Finally in the Palm of our hands

In 1996, Microsoft released Windows CE, an operating system designed for the then emerging PDA devices. It promptly bombed, after users complained that it tried to do too much at once causing sluggish performance. Palm now dominates the handheld computer market with a 79 percent share. Microsoft, though, has unveiled a new Windows CE that aims directly at Palm's lofty status -- and mimics simplicity of its operating system. Results of this battle are still a few years away.

August 1999 brought with it more good news for the Windows CE system. BP Amoco announced that it would include web browsers featuring the Windows CE system in its new pumps.

South of the border

Anticipating a large explosion in internet usage in Latin America Microsoft purchased 11 percent of Brazil's largest cable television operator Globo Cabo SA. The $126 million deal includes plans to develop interactive television and a joint portal site.

Drawing on its strengths

In September 1999 Microsoft purchased Visio, a producer of technical drawing software, for $1.26 billion in stock. The move allows Microsoft to fill a hole in its top selling Office product line, which does not include a drawing application. Microsoft plans to sell the new software, alongside Office, to the more than 100 million Office users worldwide.

E-tailing news

Microsoft and Ford announced a partnership in September 1999. Microsoft will provide the technology for Ford to sell cars, built to order, via the Internet. Using its carpoint.com site, Microsoft will aid in selling Fords and other types of vehicles. The software company will use its MSN site to promote the service both to individual customers and to the auto industry itself.

Microsoft phone (and cable)home

In December 1999, Microsoft struck a deal with Swedish cell phone manufacturer Ericsson to use a scaled-down version of its Internet browser in some phones. Microsoft had previously been shunned by all of the major cell phone companies, and the agreement reinvigorates Microsoft's long-held goal of becoming a software supplier to cell phone makers. The first Microsoft product in Ericsson phones will be an e-mail program, to be launched in mid-2000.

Hoping to make the cable set-top the television, broadbad, and Internet telephony gateway into people's homes, Microsoft has teamed up with Liberty Media International, a worldwide cable-investment group. With Liberty investing in pipes and focusing on content, Microsoft hopes the cable set-top boxes will use Microsoft software.

Microsoft crossed over to the phone industry again in July 2000, when it signed a deal with Net2Phone that would allow the 18 million MSN Messenger users to make free long distance phone calls via the Web. Analysts suggested the service would further drive down long distance prices, perhaps bringing costs down to zero for consumers.

Gaming to Win