The Wall Street Journal, August 8, 1997
The Battle Beyond Apple

Microsoft's osculatory investment of $150 million in Apple Computer obscures what is truly at stake at this momentous point in the history of information technology. The central conflict in economics is not the continuing war among companies, nations, or alliances for the share of existing markets.

Those battles are trivial and perpetual. They embroil governments, establishment CEOs, and the legal armies of antitrust in endless wrangles, fraught with sound and fury, ultimately signifying little. The shuffle of CEO chairs, the shift of market shares, the rise and fall of media titans—it all preoccupies the industry press, whose idea of important industry leaders are men of the past like Sumner Redstone, Steve Jobs, and Ted Turner. Following this focus, governments pretend to foster what they call "competition," which means supporting a specific array of rivals on what is called a "level playing field." Such competition reduces all participants to a sterile rivalry in existing services that customers already have: desktop operating systems, office suites, cable TV, local and long-distance telephony, limited World Wide Web functions and slow-speed Internet access.

The central conflict in economics, however, has little to do with such "competitions." It is the battle between past and future, the war between the existing configuration of industries and the industries that will soon replace them. Today, in the crucial realm of information technology, the central conflict divides all the companies focusing on the desktop computer and the television set from those venturers dedicated to the overthrow of these establishments through the Internet. Both Apple and Microsoft are increasingly on the wrong side of this war.

Engulfing Microsoft
Just imagine you are Bill Gates, king of the current industrial establishment. Your products utterly dominate desktop computers. While you indulge in much denunciation of Internet "hype," Internet traffic grows more than 200-fold in less than two and a half years.

Before this movement engulfs Microsoft, you are trying to incorporate the Internet into your desktop operating systems. Doubtful of your ability to sustain the growth of Microsoft at its current pace in the computer business alone, you are investing several billion dollars in a campaign to convert the TV into a new Microsoft platform. You are allying with NBC in the MSNBC network, buying the lame WebTV Internet access system for $425 million on top of a billion-dollar investment in an in-house TV "blender" product.

Now, however, you are faced with a genuine new threat. Recognizing that the Internet tidal wave jeopardizes nearly all existing hardware and software platforms, your key rivals, Larry Ellison of Oracle and Scott McNealy of Sun, announce plans to launch a network computer optimized for Internet access. They also launch a new programming language and platform, called Java, that both incorporates the state of the art in so-called "object oriented" software and liberates developers from the Microsoft operating system stranglehold. First Sun, then Mr. Ellison announce plans to take over Apple and transform it into a vessel of Java-based network computers "with no need for Windows."

Within two years after its introduction by Sun Microsystems, Java has become the most powerful movement in computing. Fueled by the efforts of some 400,000 developers, Java has the power to break Microsoft's lockin of applications profits and lockout of rival operating systems.

But even early this year, you still do not really get it. You are still largely in denial, grousing about Internet "hype," and delusionary "holy grails" in computer languages, and cackling about the silliness of your critics who imagine that Java is revolutionary. But the reports keep coming in. On Web pages, Java applets outnumber Microsoft's competitive Active X applications by a factor of seven. On college campuses, Java students outnumber students of the established Microsoft languages C and C++. Technical publishers launch some 800 Java titles that collectively sell in the millions. Even within Microsoft itself, the few hundred Java programmers hired as a hedge claimed three to five times more productivity than other Microsoft programmers. IBM enlists in the Java army, deploying some 1,200 developers around the globe, standardizing on pure Java throughout the company, and preparing to launch a series of network computers based heavily on Java.

Your first instinct was to humor the hype and embrace and extend Java, turning it from a revolutionary threat to the Microsoft empire into an evolutionary cosmetic for Web pages. Finally, last week, you crack under the pressure. As Computer World's headline blazes, "Microsoft declares War" on Java. Your top lieutenants, Steve Ballmer and Paul Maritz, denounce Java as "just another operating system" and declare that you have no intention of "forcing [it] down the throats of Windows customers." In short, Microsoft dismisses the avid desires of Internet users for an alternative to an exclusively Windows-based world.

Meanwhile, Microsoft's WebTV is in essence a dancing dog. As Boswell's Dr. Johnson explained, you are amazed not by how well it dances. You are amazed that it dances at all. But you are unlikely to choose it for your partner at the prom.

WebTV can display Web pages, but its resolution is inferior to a PC's. It offers Internet access, but without the most exciting visual effects and at a premium price. It can present text in a readable form. But not in as readable form as a PC, which in turn remains far inferior to paper. It can supply e-mail, if you buy a keyboard, but it lacks the features of many e-mail programs. The system is obsolete even before it reaches its 100,000th customer. The few buyers are mostly retired people, who find it a simple way to sample the 'Net. They are not the wave of the future.

At the same time, a different paradigm is developing, one that looks at first like WebTV but is actually quite different—the network computer. Far from inferior to the PC, the network computer will offer a more robust and reliable access to the full resources of the 'Net, embracing the ever increasing array of Java software components. The Java programming language and platform is a tsunami that will sweep through the economy. In the face of this tide of change, Microsoft and Apple are both forces from the past. With a $250 million check, Mr. Gates has managed to change the subject in the press from Microsoft's Java battle to a long-past conflict over desktop operating systems. But he has not shifted the tides of change. He has merely embarrassed Oracle's Mr. Ellison by increasing the price of any purchase of Apple, and he has trumped Netscape by buying dominance for the Microsoft browser in the next Apple operating system. He has probably distracted the antitrust constabulary by perpetuating a lapdog desktop operating system "competitor" in Cupertino, Calif. But Mr. Gates can only win the future by fully embracing Java and programming for the network computer.

Clash of Paradigms
The fight between Java and Microsoft is a clash of paradigms. Java began with the Internet paradigm and has flourished with the spread of the World Wide Web. Active X, Microsoft's alternative, began on the desktop and is withering on the 'Net. The winners will recognize that the network is now the computer and the central processing unit is now peripheral. If Microsoft decides to fight this shift to the future by thwarting the necessary move toward Internet-based computing, it will shrink the industry even if it expands its own power in it.

But if Microsoft turns away from the TV temptation and devotes its full resources to fulfilling the Java promise, its margins may be lower than today. Ultimately, however, even Microsoft's overall profits will be greater in a global software economy based on the Internet as its new central nervous system.