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Microsoft: Foe, partner, or both?

Despite the perception that Microsoft gobbles up everything it needs and stomps on everyone in its path, there is evidence that firms can coexist with the enterprising software giant.

Despite the industry perception that Microsoft gobbles up everything it needs and stomps on everyone in its path, there is evidence that companies can coexist with the enterprising software giant.

In certain cases, Microsoft has chosen to partner with a firm, rather than expend its engineering energy on developing an equivalent product. In other examples, the company seems to keep tabs on potential opponents, even while teaming with them on various initiatives.

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Windows NT next for DOJ? Take Citrix Systems, for example. Early last year, Citrix's stock dropped abruptly when word reached Wall Street that Microsoft might enter Citrix's stronghold--a software niche that provides users access to desktop applications residing on a central server.

Noting the hype surrounding various takes on "thin clients" and lowering the total cost of ownership of PCs, Microsoft could have either developed its own technology or looked to a third party for help. A subsequent deal between the firms has propelled Citrix to enormous growth in recent quarters. A forthcoming version of NT will offer a "multiuser" option for central allocation of applications to PCs or so-called Windows Terminals.

As part of the deal with Microsoft, Citrix received $75 million for research and development and $100 million in royalties, according to Citrix executives. They believe Microsoft's entry into the market will only expand the potential for sales.

"We've been dealing with Microsoft from the early days. Nothing is really new to us in dealing with Microsoft," said David Manks, senior product manager for Citrix. "Are we concerned about working with them? We're excited about the opportunity."

Part of the reason Citrix and Microsoft came to an agreement, however, was based on the software giant's efforts to torpedo shipment of Citrix's software for NT 4.0. In order to erase that obstacle, Citrix essentially had to trade some of its intellectual property in order to gain access to the growing NT 4.0 market.

Check Point Software continues a high-wire partnering act with Microsoft, as the software giant continues to mutter under its breath that it may enter the lucrative security software niche on which Check Point is focused.

In the latest development, Check Point and Microsoft extended a partnership focused on the forthcoming Windows NT 5.0 release, just weeks after Microsoft executive vice president Steve Ballmer was quoted as saying that his company may enter the security field.

Berkeley Networks, a networking equipment start-up, has used NT 4.0 as the base operating system for its line of switches, exemplifying a trend that could become more prominent as Microsoft moves to get NT into a wider variety of devices.

"A key benefit for us is to be able to integrate into services such as directory, security, and management," said Kamal Anand, director of marketing and business development for Berkeley Networks. "We are able to leverage third parties who are application developers for those services."

"It's basically better solutions faster," he said. "It's very similar to the PC model."

For every Citrix, however, there is an FTP Software, a company that has barely made it back from the brink after Microsoft decided that FTP's core business--a software "stack" that supported TCP/IP protocols--would make a nice addition to the core of Windows.

The NT opportunity also creates a tangled web for various firms with products in several markets. Software firms that oppose Microsoft in some areas can also sell a ton of software on top of Windows NT.

IBM and Oracle are enjoying record sales of their database software on NT. IBM claims that sales of database software on NT climbed 110 percent this year. And, both have also made ports of their software to NT a top priority.

But both companies are also fighting Microsoft fiercely in the database server, OLAP, application server, and middleware markets. And all database makers are suffering from lower margins, thanks to Microsoft's aggressive pricing on SQL Server.

Some rivals believe the success NT has had thus far is not necessarily a harbinger of things to come, even as they sell millions of dollars worth of software for the operating system.

For example, at a recent event, outspoken Oracle chairman and CEO Larry Ellison belittled Microsoft's strategy to propagate as many NT servers as possible to customers, following the model it used to gain a virtual monopoly of the desktop.

"We think that's wacko," Ellison said. "That whole architecture is flawed, I believe."