The LAN market: segments at a crossroads

Computer Industry Report,  August 31, 1995  

Tags: Desktops, HARDWARE, International Data Corp., LANs, Microsoft Corp.networkNETWORKINGPCrevenueserverSOFTWARETCP/IP

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Microsoft is aware that network and desktop software are in this sense converging. In an effort to capitalize on this trend and sell more Windows NT Advanced Servers (NTAS), it is leveraging its Windows (both 3.x and 95) desktop operating systems, its Office application suite, and its software development tools (like Visual Basic) to the hilt. For example, in order for software to be eligible for the Windows 95 logo, it must be written to a specification that makes certain it also runs under Windows NT and thus ensures a wealth of NT applications and developer support.

It should come as no surprise that Microsoft is employing a particularly aggressive strategy to push Windows NTAS. Despite a presence in the LAN OS market for many years, through LAN Manager and now Windows NT, Microsoft has failed to achieve real success. Since the LAN OS market represents the key to the enterprise for Microsoft, this shortcoming is particularly nagging. In order for Microsoft to go to the next level -- to move beyond the desktop and into the enterprise -- it must steal share from Novell, the LAN OS market leader.

Novell is leveraging the directory service functions in NetWare 4.1, highlighting the ability to develop and manage complex distributed network applications. The company's extensive installed base, combined with the mission-critical nature of its networks, will make Novell extremely difficult to overcome under any circumstances. In order for Novell to leverage its distributed network strategy, it must do a better job of getting users to upgrade to NetWare 4.x, something the vendor has been struggling with for years.

Overall, the LAN OS market grew 19% in terms of licenses, but decreased 4% in end-user sales value because of strong pricing pressure and a general transition to lower-priced products. During 1994, 1.0 million PC LAN OS licenses, representing 19.5 million PC nodes, were shipped worldwide. The worldwide dollar value of the licenses shipped in 1994 was $2.3 billion, down from $2.4 billion in 1993. Growth is expected to slow after this year with worldwide revenue expansion falling from 15% in 1995 to 4% by 1998. By 1999, IDC forecasts that 180.0 million PCs (installed) will be running a network operating system and that the dollar value of PC network operating-system shipments will exceed $3.8 billion.

Market Shares: No Major Shifts

In terms of market share, there were no significant shifts in the PC LAN OS segment in 1994. Novell's NetWare continued to account for approximately two-thirds (65.6%) of nodes shipped worldwide. Although NetWare 4.x shipments increased, sales were somewhat disappointing. NetWare 3.x remained Novell's dominant product, while 2.x shipments were minimal.

Microsoft increased its total market share to 9.4% of worldwide 1994 nodes on the basis of increased use of Windows for Workgroups as a peer-to-peer network operating system and sales of Windows NT Advanced Server. Windows NTAS, utilized as a file and print server, totaled 52,000 licenses (5.5% market share). Windows 95 should accelerate the peer-to-peer trend given its ease of use, plug-and-play architecture, and robust network support. In fact, Windows 95's networking may be the product's sleeper feature, as it is a dramatic improvement that is infrequently mentioned.