Microsoft casts a .Net over the Internet

Instead of Windows on the desktop, ASP-style services on the Web

If, as Kenny Rogers says, you have to know when to hold 'em and know when to fold 'em, then Bill Gates has decided that now - with the federal government looking to split his enterprise into separate and equally un-monopolistic halves - is not the time just to stand pat but to raise the stakes sky high.

The Microsoft chairman did just that at a five-hour presentation in Redmond, Wash., unveiling what he expects to be the future of software - Microsoft.Net, a platform that will make all types of applications downloadable from the Internet to a range of devices.

"You could say it's a bet-the-company thing," Gates said.

And it's far from a sure thing, according to many observers. Microsoft must gamble that it can transition smoothly into the next era of computing, where devices access the Internet without going through Microsoft's Windows operating system. Even without the added pressure of a court-mandated breakup, it's one tough turn for the Battleship Microsoft to navigate.

"The impact of the Internet has been spectacular to date, but the pace of innovation will accelerate over the next five years," Gates said. "Our goal is to move beyond today's world of stand-alone Web sites to an Internet of interchangeable components, where devices and services can be assembled into cohesive, user-driven experiences."

The company demonstrated Microsoft.Net's "universal canvas," a central application that will integrate separate functions such as a Web browser, e-mail program, operating system and IP voice calling.

Microsoft will release an "Office.Net" version of its productivity software that will save documents in XML format, Gates said. The first flight of .Net applications - a new version of the Visual Basic programming tool for creating XML applications and three or four Web services - will be available next year. Office.Net and other services will go to market in 2002.

Gates compared the development of the new platform to the introduction of Windows 95. "It will affect every piece of code that gets written," Gates said. "There is not a Microsoft product that isn't touched."

The move means a new business model for Microsoft, which will move from a sales and licensing revenue model to one built on subscriptions. This could result in greater revenue as consumers and businesses switch from purchasing applications to renting them as needed and paying monthly fees for periodic software updates over the Web.

Many questions surround the effort. Assuming that Microsoft can make the move to "environmental computing," will it be able to compete? Other companies are also targeting "always anywhere" applications - from service providers such as America Online to networking powers such as Sun Microsystems and Oracle.

Microsoft appears to be holding out the promise of something different from the aims of either the ISPs or the networking giants, said analyst Rick Sherlund of Goldman Sachs & Co.

"This solution will go much deeper than just accessing e-mail over your PDA or wireless phone," he said. "Microsoft is using the local intelligence embedded in these devices and leveraging its Outlook line to provide a richer, more elegant product than most thin-client platforms."

Oracle and Sun have taken a different tact on Internet services, holding that large centralized servers will be used for most data-processing chores.

Software developers also will watch the openness of the .Net platform closely. .Net relies heavily on XML, or extensible markup language, a protocol designed to permit computers and processing-enabled devices to share data maintained in an "information cloud" on the Internet. Microsoft now is trying to establish its credentials as an open platform to attract third-party software developers to provide many of the applications.

"It is absolutely critical that we be open, that we involve third parties," said CEO Steve Ballmer. "We want thousands of developers."

That openness also may help mollify federal investigators who may otherwise see the .Net initiative as the company's latest attempt to solidify its dominance in computing circles with a set of interlocking products. Because these services will run on machines that license Windows - even though they can talk to computers running other operating systems - the breakup efforts authorized by Judge Thomas Penfield Jackson could collapse the ground beneath Microsoft's feet.

"It's an in-your-face response to the government case," said analyst Brian Goodstadt with S&P Equity. "But it could all be tough to put into action if the company gets split up."

In other words, Gates & Co. shouldn't count their money 'til the deal is done in appellate court.