Microsoft struggles for product definition

The strategy involves a complicated, somewhat esoteric new set of technologies. It essentially will try to reposition Microsoft’s Windows operating system and certain Microsoft applications and services for the Internet age. Microsoft also is expected to broadly outline new types of Web services, similar to its existing Passport service for online user authentication, which can run across different applications and non-PC devices.

Microsoft must tread delicately in presenting its make-or-break plans in light of the government’s continuing antitrust lawsuit, some analysts say. Microsoft probably doesn’t want to couch the new initiative as some sort of superoperating system for the Internet since that might uncomfortably underscore Microsoft’s dominating role in operating systems, says Charles Gerlach, director of e-strategy for Mainspring Communications Inc., a Cambridge, Mass., consulting firm. That "would be very dangerous today," Gerlach said.

Microsoft officials insist they aren’t rolling out NGWS with the Justice Department in mind. "Literally, we spend no time talking about it. It is just such a black hole," says one person close to the effort. Microsoft also notes it rolled out Windows 2000, the latest version of its operating system in February amid the continuing lawsuit.

Drew Brosseau, an analyst who covers Microsoft for S.G. Cowen in Boston, says, "They’re going to have to tailor their comments, presumably, at some level not to raise a red flag." But "that also suggests you sort of have to take whatever they say with a grain of salt, because it could change," Brosseau adds.

Some analysts say the NGWS strategy meeting, scheduled for June 1, won’t be as important as the strategy day Microsoft held in December 1995. Then, company founder and Chairman Bill Gates helped articulate the company’s first real Internet strategy, an outgrowth of Gates’s famous "Internet Tidal Wave" memo laying out the future promise of the Web. The NGWS event is expected to be more theoretical and forward-looking, with few specific new products unveiled.

Microsoft — which views NGWS as crucial to competing in new Internet markets in which it is now the underdog — also isn’t expected to shy away from emphasizing the integration between its operating systems and widely used applications, such as those within its Office suite. If the Justice Department had its way, Microsoft’s operating-systems business would be separated from its lucrative applications division. Microsoft has said in recent court filings the two sides of the compay must work together for optimum results, and that a breakup would stunt innovation.

Some internal elements of the new strategy remain unresolved, including its name, people close to the company say. "NGWS" is considered unwieldy.

Meanwhile, the top Microsoft executive for Windows, Group Vice President Jim Allchin, is expected to take a leave of absence this summer, although Microsoft says he will likely be off only for two months for a much-needed rest.

Allchin, who oversaw the release of Microsoft’s Windows 2000 operating system in February, plans to return in September.

Other members of Microsoft’s top management circle continue to work to finalize the details of the strategy. Chief Executive Steve Ballmer briefed more than 20 top managers about two weeks ago, but things are still evolving, the people close to the company say. If the NGWS initiative was "all sort of locked down," one person inside Microsoft says, "strategy day would have been a couple of months ago."

But last-minute tinkering is normal at Microsoft, analysts note. "My understanding is, sometimes Microsoft is changing PowerPoint presentations all through the night before they actually do an announcement," says David Readerman of Thomas Weisel Partners. "I wouldn’t imagine this would be any different."

Complicating matters this time is the fast-growing Internet and the spread of non-PC devices. "Let’s say you use your cell phone to look up a restaurant in San Francisco using location-based services on a wireless network," suggests Brosseau. "What is that? Is that infrastructure? Is that an application? Is that content? I don’t know. And I’m not sure it matters."