Door Opens a Crack For Software Firms

WAS that the sound of a summer breeze rustling in the evergreens in Redmond, Wash., the other day? Or was it a collective sigh of relief on Microsoft Corporation's sprawling campus?

By agreeing to modify certain sales and marketing practices, the world's dominant software company has put to rest four years of antitrust investigations by the United States government and European officials. ``This is a big win for Microsoft,'' says Jesse Berst, publisher of Windows Watcher, a Redmond newsletter that follows the company.

While some industry players had hoped the investigation might lead to splitting Microsoft in two, the Justice Department's consent decree announced Saturday calls for much milder actions. Microsoft will pay no fines and has admitted no wrongdoing.

In the short run, analysts say, the settlement will do little to stem Microsoft's success; the company has grown from an idea in a college dorm room in 1975 to a virtual monopoly on operating systems, the basic software that allows personal computers to run.

Yet longer term, ``the door is open a small crack for companies to create new operating systems ... and have some hope'' of getting computer manufacturers to install them on PCs, Mr. Berst says.

The Justice Department, which acted after an investigation by the Federal Trade Commission ended without action, says the decision will level the playing field in the software industry. Specifically, Microsoft has agreed to stop:

* Charging computermakers who use its operating systems a fee for each computer they ship, regardless of whether a Microsoft operating system is installed.

* Signing lengthy contracts, which bind manufacturers to buy its software even after more advanced products become available.

* Forging unduly restrictive agreements with software companies that write applications (task-oriented programs that run on top of the operating system). Microsoft had signed deals allowing software developers to see a program only if they agreed not to work with other operating-system suppliers.

These steps are being met with relief by many competitors. But the deal comes as Microsoft's position is firmly established, with an ever-burgeoning user base and hundreds of software companies devoted to writing programs that run on the firm's DOS or Windows operating environments. Other operating systems lack this clout.

To some extent, the settlement will help Mircosoft rival Novell Inc., which markets its own DOS alternative. It is probably an even bigger boost for IBM, which is trying to market an alternative called OS/2, and with Apple Computer is developing another operating system called Taligent.

Microsoft has a reputation for bullying smaller software companies. These companies are now teaming up in an effort to get big enough to stand up to Microsoft - and survive what analysts expect will be an industry shakeout.

Applications developers, who had hoped to see a ``Chinese wall'' erected between Microsoft's applications and operating-systems divisions, are thus disappointed. They see the giant gaining an unfair advantage over outside developers.

But despite its victory, the company remains vulnerable.

Users and industry insiders agree that Windows is far from perfect. It is not really an operating system, but rather an add-on to the DOS operating system. Windows takes computers from the realm of text-only commands to a simpler operation based on graphical icons.

But it is perplexing enough that several companies sell add-on software of their own to make computing simpler still; Microsoft is preparing an upgrade of Windows that will leave DOS behind.

Though Microsoft is the envy of the industry today, revolutions can come surprisingly fast in the computer industry. Ten years ago, IBM Corporation was in a comparable position to Microsoft, sweating after being considered a candidate for a monopoly-busting breakup. Yet by playing his hand carefully, Microsoft chairman Bill Gates has seen his company, along with chipmaker Intel, gain the high ground, while IBM struggles to reposition itself.

Mr. Gates appears well-suited to avoid a downfall. Building on a 1980 contract to provide DOS on IBM's first PC, he wisely reserved the right to sell DOS to makers of ``clones'' of the IBM machines, thus becoming the industry standard software. Last year, the company reaped almost $1 billion of profits on $4 billion in sales.