I.B.M. Must Play Catch-Up With Microsoft As It Begins to Ship Improved Software

An Unlikely Underdog

By John Markoff
The New York Times

March 31, 1992

I.B.M. finds itself in a remarkable position -- the underdog -- as it begins shipping the first copies today of a revamped and spruced-up version of its OS/2 operating system software for personal computers.

As recently as two years ago, before its bitter split with the Microsoft Corporation, such a turn of events would have been unthinkable. The industry has historically viewed I.B.M. as routinely entering markets late, and then quickly dominating them through sheer size and marketing prowess.

Yet in challenging Microsoft's Windows, which has already sold more than 10 million copies, the world's largest computer maker finds itself in the distinctly uncomfortable position of playing catch-up against a competitor that is overwhelmingly dominant in the key market of software that controls a computer's basic operations.

Executives of the International Business Machines Corporation say privately that in reintroducing OS/2 they are hoping to avoid creating any more confusion in the computer industry. That is a remarkable admission, industry executives and analysts say, and it demonstrates how radically the industry has been transformed in recent years.

I.B.M. -- once legendary for successfully controlling its competitors by sowing what became known as "FUD," for fear, uncertainty and doubt -- is trying to avoid the FUD factor. And in its new role as underdog, I.B.M. has found certain advantages.

Indeed, the company could mount a successful comeback, industry executives and analysts say, because Microsoft, of Redmond, Wash., is potentially vulnerable in a number of ways:

*Many industry executives say I.B.M. is likely to win the crucial battle over which program looks and works better. The appearance of the Windows desktop, which pales next to Apple's Macintosh desktop, has changed little in version 3.1.

*Many of those who have purchased Windows are still not using it regularly, and this so-called shelfware factor could haunt Microsoft. A study late last year by Creative Strategies, a market research center in San Jose, Calif., found that only 60 percent of the corporate users who had purchased Windows were using it regularly. This means that the gap between Windows and OS/2 is not so great as it appears.

*The growing importance of computer networks is likely to play toward I.B.M. and OS/2. Windows' biggest handicap is that it is based on the MS-DOS operating system, which lags technically. Also important is I.B.M.'s alliance with the Novell Corp. whose Netware software dominates the networking business.

*I.B.M., once distrusted by much of the industry, has a new-found good will factor. Many personal computer industry software companies now fear Microsoft's influence and are counting on I.B.M. to level the playing field by creating a second standard.

"Everyone is rooting for them, hands down," said Jim P. Manzi, chairman of the Lotus Development Corporation, the leading maker of spreadsheet software and a bitter Microsoft competitor.

Did Windows Pave the Way?

I.B.M. is hoping that rather than lock up the marketplace, Microsoft has in fact paved the way for I.B.M.'s more advanced operating system.

"Windows' success is encouragement that the dog is going to hunt," said Jack D. Kuehler, president of I.B.M.

Still, most industry analysts say that I.B.M.'s biggest challenge will be to reverse an industrywide impression that Microsoft has an unassailable advantage. I.B.M. is expected to sell between two million and four million copies in 1992, and Microsoft is now selling Windows at a rate approaching a million copies a month.

The battle for dominance in operating system and graphical user interface -- "GUI" in computer industry jargon -- is crucial. If Microsoft retains its stranglehold over desktop software, many in the industry believe that I.B.M. will be relegated to the role of hardware maker, a business that is increasingly commodity-based and less profitable.

As a result, the direct confrontation that will take place next week at Comdex, a computer industry trade show in Chicago, is being underscored by unusual bitterness and angry charges by representatives of the two companies that in friendlier times dominated the PC business. I.B.M. plans to follow up with a substantial advertising campaign, outspending Microsoft later in the year.

In an unusual move scheduled to begin tomorrow, I.B.M. will offer OS/ 2 directly through an "800" number. Windows users will be able to purchase the program for $49, DOS users will be able to buy it for $99, and new users will pay $139, through July 31, as part of a special promotional price. Current owners of earlier versions of OS/2 will get the program free as part of the promotion.

I.B.M. executives said yesterday that the company had scheduled more than 800 events worldwide to give potential customers a chance to use OS/2. The company has also in effect "deputized" its 340,000 employees by offering special incentives for those who introduce their neighbors, as well as their business contacts, to OS/2.

Still, I.B.M. executives say they realize that to unseat Microsoft they have a multiyear task ahead of them. James Cannavino, who heads the company's desktop computer business, said yesterday that he no longer thought of I.B.M. sales and marketing forces as a fleet of B-52's. "For a long time we were used to having an upper hand with huge momentum," he said yesterday in a telephone interview. "But now it feels good to be an underdog in this environment."