The LAN market: segments at a crossroads

Computer Industry Report,  August 31, 1995  

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The workstation and server fronts will be much more difficult as Microsoft faces formidable and entrenched competition. The vendor will make inroads in these arenas, but the level of dominance Microsoft enjoys on the desktop -- just over 80% of PC shipments worldwide in 1995 -- will wait until the next century, if ever. Not until 1997 will more than a million PCs ship worldwide with Windows NT Workstation (although this will be more than double the 750,000 units in 1996), and even this number will represent a mere 2.4% of total PC shipments. Windows NT Server is having an outstanding year and will triple its worldwide license shipments in 1995 (vs. 1994) to 165,000, thus more than doubling its market share to 13.3% of the market. By comparison, Novell, the market leader, will ship 662,000 licenses of its NetWare products, to gain 53.4% of the worldwide PC LAN OS market. Further gains for NT Server will be steady but much more gradual. In 1999, Microsoft will ship 390,000 Windows NT Server licenses and earn 22.3% of the market, compared to Novell's 845,000 units and 48.3% share.

Over the next few years, Microsoft will need to further segment its OS product line as the market expands and user requirements diverge. By 1999, it will add a distinct consumer OS (leveraging Bob and Windows 95/97) and perhaps even a set-top box OS. At the same time, though, Microsoft expects to merge its workstation-class offering (Windows NT Workstation) with the corporate desktop product (Windows 95 and 97). Segmentation of this sort is wise since home and business PC users' requirements for a desktop operating system are already very different.

In conjunction with these product goals, however, Microsoft also hopes to both increase and flatten its revenue stream. Basically, the vendor aims to get $100 per PC per year from revenues in operating systems, applications, CD-ROMs, etc. For consumers, the goal could go as high as $150 per PC. Since regular and incremental upgrades will play a critical role in achieving this revenue target, Microsoft hopes to get users to upgrade their OS every two years. Given that roughly 76 million PCs will ship worldwide in 1997, should Microsoft achieve just its $100 per system objective by then, the vendor would enjoy calendar 1997 revenues of $7.6 billion on the basis of new PC shipments alone (not counting installed base upgrades). Not bad for a firm with fiscal 1994 revenues of nearly $4.7 billion. (For Microsoft to keep revenues steadily growing at its fiscal 1993/94 growth rate of 24%, the vendor would have to earn nearly $8.9 billion in fiscal 1997.)

Not only do frequent upgrades help Microsoft achieve its $100 goal, however, they also help flatten revenues. For the past few years, Microsoft has in a sense been overly reliant on Windows 3.x for its revenues in that the OS has been the company's cash cow, and it is only now being truly upgraded. If Microsoft can successfully spread its revenues more evenly over a host of products, each with its own upgrade cycles, Microsoft would achieve a more regular and even revenue stream.