With its $135 million investment in Corel, Microsoft is propping up the only effective competitor to Office and thereby buying insurance against a future Justice Department lawsuit.
Microsoft has also settled some outstanding legal claims by Corel as part of the deal and grabbed some excellent graphics technology.
Microsoft has been struggling to develop a strategy for Linux, which presents it with both a risk and an opportunity. Linux is a risk to the extent that it may compete with or supplant Windows in selected areas over the next 5 to 10 years.
However, META Group believes that Linux is much more of a risk to Unix companies and that Microsoft could use Linux against them. As a planning exercise, we believe Microsoft should develop a strategy that allows it to prosper and continue to hold a dominant role in the computing industry even if Linux succeeds.
Microsoft's .Net initiative is geared toward moving the independent software-developer focal point to a layer above the operating system and is at the core of such a strategy. Microsoft is working hard with the standards bodies to have its new C# programming language and other key parts of the .Net technology accepted as international standards.
An advantage in this approach for Microsoft is that .Net is an operating environment that runs on top of the operating system and potentially could enable the same applications and management tools to run across different platforms. This would give Microsoft a strong position regardless of which operating system dominates a particular platform in 10 years, while moving all of Microsoft's technology onto the Web.
To become a real standard, however, .Net must be ported to other operating systems besides Windows. As much as possible, Microsoft wants to control those ports, both to be sure they are technically compatible and to head off competition. The agreement with Corel, a Linux player, may give it the channel it wants to port .Net to Linux in a way that it can control while limiting its exposure to risk.
But Microsoft may see Corel in an entirely different light. Corel currently plays an important role in Linux. Many other Linux companies look to it for its skills, tool sets and the work it does on key Linux committees. Therefore, Corel can be a valuable ally for Microsoft in Linux, allowing Microsoft to influence key questions, such as how the user interface, setup and deployment will look and function.
Also, Corel has a powerful application suite. WordPerfect is still popular in the legal profession, for instance, and CorelDraw is a leading professional-level drawing program on both the PC and Macintosh platforms. Having that suite ported to .Net would help attract all of those users to the new Microsoft environment.
The company that controls the programming interfaces and other elements to which developers target applications is in a powerful market position. Microsoft won this game with Windows and is now attempting to win it with the Web.
Investing in Corel is also a preemptive move, because it minimizes the possibility that Corel could be purchased by Red Hat or another Linux player.
We believe Microsoft's investment in Corel is good news for users. First, for Corel users, this deal gives Corel a more stable position over the next two to four years. Corel may remain on life support for some time, but it is no longer in danger of expiring immediately.
Second, because Corel specifically is porting its applications to .Net as part of this agreement, it assures users that if .Net does become the next step in personal computing, the Corel applications will be there.
Microsoft benefits from this investment because it obtains additional developer focus on the .Net platform and may gain a channel to develop and deliver a Linux .Net runtime environment. However, users should remain a little skeptical as long as Microsoft uses third parties to port .Net to other platforms rather than doing the port itself.
META Group analysts Dale Kutnick, Steve Kleynhans, Peter Burris, David Cearley, William Zachmann, Val Sribar, and Jack Gold contributed to this article.
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