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Gates: Explorer will be huge

Bill Gates says Microsoft can increase Internet Explorer's browser market share to as much as 40 percent.

SEATTLE--Microsoft is aiming to build its market share for Internet Explorer to as much as 40 percent, chairman Bill Gates told Wall Street analysts Wednesday, and he thinks that recent Web browser deals will carry it to that level.

Gates's goals are ambitious, considering that Internet archrival Netscape Communications is commanding a share of 70 percent to 80 percent of the market. And he is even more confident about how Microsoft will fare in the intranet market: "The intranet battle plays to our strengths [in business applications]."

Gates shared his optimism with about 300 people assembled for the software giant's annual meeting with financial analysts. His glowing remarks were tempered only by a brief interruption when authorities found a suspicious package at the Bell Harbor Conference Center and evacuated all attendees for about 1-1/2 hours.

The rush of real-world adrenalin didn't dampen Gates's enthusiasm about the potential of cyberspace. The keynote speaker said Microsoft's long-pursued goal of building an "annuity," or continuing revenue stream, from its software will get a big boost from the Internet.

"The ability to work with a customer electronically changes the annuity model basically," Gates said. A key part of that strategy is Internet Explorer, which is quickly gaining popularity and could seize 30 percent to 40 percent of the browser market, he said.

"Netscape will surprise us three or four more times," Gates said, praising Netscape's management. "They have the world's attention. It will take at least a year of very good execution [to catch up]. They were the darlings of all time, but that phase has ended now."

On the Web server side, however, Gates doesn't see Netscape as his chief competitor. "Apache [free Web server software distributed over the Net] is our biggest competitor. It's gaining share faster than Netscape."

Gates did talk financial risk in terms of its content business, however, which includes the MSNBC combination cable channel and Web site that Microsoft is doing with NBC, and Microsoft's own MSN. "The economics are tricky for both," Gates said, indicating MSNBC could lose up to $150 million a year for several years. "The economics are still pretty ugly."

Microsoft's content businesses--which also includes Slate--are in fact all efforts to exploit Microsoft's brand name, building franchises now that could produce significant profits later. "We are not becoming a media company," Gates had said earlier, doing an open question and answer period with analysts. "Going into a cable channel is our only conventional media business."

If Gates was generally the voice of optimism at Microsoft's annual briefing for Wall Street analysts, executive vice president Steve Ballmer sounded some of the traditional caveats that inevitably punctuate such yearly gatherings.

Big companies are no longer driving the market for technology purchases, said Ballmer, Gates's field commander at Microsoft; today's booming growth is coming from the home, small business and so-called SoHo--small office, home office--markets, all areas where Microsoft has little experience in marketing.

Citing the success of the Windows 95 operating system in fiscal 1996, Ballmer said that feat will be impossible to duplicate in the current fiscal year. Even the updated Office suite of business applications due to ship later this year, Office 97, gives him small comfort--at least in public.

Ballmer named Netscape as Microsoft's most serious challenger in software, but he and other executives also prominently cited Corel as a strong competitive threat. The Canadian firm recently bought the WordPerfect word-processing and spreadsheet programs from Novell and won a bundling deal with Packard Bell, the largest PC player in the consumer market.

Ballmer also highlighted software piracy as a big concern, saying it is far more prevalent among small businesses and consumers than among corporate users. In addition, he said the PC boom in Asia was something of a mixed blessing, as it is taking place in a region where software piracy is rife, thus potentially hurting Microsoft sales.

Ballmer said Microsoft will do whatever is necessary to maintain market share against applications competitors like Corel. He ruled out price hikes, saying reductions on unspecified products are more likely.

Turning to hardware, Microsoft officials hyped the potential of IntelliMouse, a PC mouse that includes a button that allows scrolling through a document without using scroll bars. IntelliMouse, due to ship in the fall, will be priced around $80.

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