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Windows 2000 signals new era for Microsoft

Seen as the center of Microsoft's strategy for the millennium, the new operating system will be the basis for an entire next generation of software.

The release of Windows 2000 this week begins a new era in the world of Microsoft.

The operating system marks a milestone for the software giant. Seen as the center of Microsoft's strategy for the new millennium, Windows 2000 will be the basis for an entire new generation of software.

The release also will send ripples through the hardware industry, as the OS is expected to boost sales of desktops, notebooks and other systems.

"It's the most important product we've ever released," said Keith White, director of marketing for Windows. "It's the basis of all our products going forward."

On Thursday, Microsoft will celebrate the unveiling of the new OS at the Windows 2000 Expo in San Francisco and at more than 100 launch events worldwide. The event promises to be memorable, as the company hired the producer of the Grammy awards to stage the event. Guitarist Carlos Santana is scheduled to perform in San Francisco, and a variety of secret celebrity guests will be on hand at the festivities to give their Windows 2000 testimonials.

Yet despite the expected fanfare, questions about the reliability of the new Pullquote operating system have risen among industry analysts and target corporate customers. In development since 1996, the operating system has been touted as more stable and robust than previous iterations of the Windows family.

"By the end of the year, 50 percent of all (business) desktop PCs shipping will come with Windows 2000, and notebooks won't be far behind," said Mike McGuire, an analyst at Gartner Group/Dataquest.

But like any complicated software product, not every bug will be caught before it is released to the public. Only after the product is distributed on a wide scale will there be an accurate picture of whether Microsoft has delivered on its promises.

"This is the best job they've done in history for a first release, but a lot of features remain untested," Gartner Group vice president Michael Gartenberg said. "On a product this complex, they won't really know until people start hammering on it if there are any major weaknesses."

The Windows 2000 release caps a rocky year in Redmond. Microsoft delayed the release of earlier versions of the OS after dealing with beta issues. It did make its self-imposed deadline of shipping before the end of the year on a technicality, however: It released the code to manufacturers in mid-December.

While delays in the release of Windows 2000 may have given Microsoft the chance to test and improve its software, the extra time gave other companies the opportunity to edge in on the lucrative market. Linux, for instance, has made strides in the low-end server market, while Sun Microsystems has strengthened its position as the dominant choice for servers to power corporate sites.

Nevertheless, the company is looking toward the release of Windows 2000 to lead the software juggernaut into the next millennium.

"Windows 2000 is a bet-the-ranch product for Microsoft," chief financial officer John Connors recently told attendees at a Banc of America Securities conference. "It is the fundamental core of our programming effort for the next several years."

The company will officially release Windows 2000 Professional Desktop with a $319 price tag. Upgrades for Windows 98 and Windows NT will cost $219 and $149, respectively, including rebates. Windows 2000 Server and Windows 2000 Advanced Server, which are multi-seat versions of the OS designed for use on servers, will start at $999 and $3,999.

At the scheduled events, Microsoft chairman Bill Gates is expected to repeat what has become the Windows 2000 mantra: reliability, scalability and improved performance.

The future of products like SQL Server and Microsoft Exchange are inextricably linked to the success of Windows 2000, the company says. In the next 18 to 24 months, the company will turn over its entire line of server software to accommodate the new OS, executives have said.

"This is the thing that we all built on," said Paul Flessner, vice president of the SQL Server group at Microsoft, adding that his group's experience testing the operating system is probably similar to that of other database makers like Oracle.

Office 2000, the company's application suite and one of its largest revenue drivers, will likely get a boost in sales from the OS release. Sales of the home office software, released last June, lagged because of Year 2000 concerns and the pending OS upgrade.

The software efforts will have a huge trickle-down effect, other companies hope.

"We expect to see an uptick of new server platforms, a lot of desktops and a significant ripple effect in terms of software and peripherals," said David Stubbs, a vice president at Hewlett-Packard overseeing the Windows 2000 services efforts. "We think the services and server platforms are the two most significant opportunities."

Anthony McMahon, an HP representative, thinks corporate IS departments will start looking for both new hardware and software around March, as companies end purchasing freezes left over from Year 2000 bug preparations.

Notebooks in particular should get a Windows 2000: The next generation renewed interest from corporate buyers. Several customers never moved to Windows NT and instead had Windows 95 or 98 installed on notebooks and Windows NT on desktops, McMahon said. Windows 2000 is to be shipped on about 40 percent of all of HP's notebooks this year, he estimated.

Firms that build memory for PCs also are expected to ride the Windows 2000 wave. "We're anticipating a big increase," said Jim Sogas, director of the DRAM business unit at Hitachi. Microsoft publicly recommends that PC makers put 64MB in their machines at a minimum, which is roughly the amount of memory going into standard PCs today. Historically, however, Microsoft's estimate is about half the amount actually used as a minimum by PC makers.

"You can count on needing 128MB to run this thing," Sogas said.

Servers, which are expected to be in high demand because of the explosive growth of e-commerce, will be one area where Microsoft will see the most competition.

"The further up the server food chain you go, the more barriers you have," Gartner Group's Gartenberg said. "In servers, Microsoft is a powerful player but not necessarily the dominant player. They've faced issues with scalability, reliability and availability."

In this market, Microsoft will have to work to erase the perception that its operating systems are unstable, especially when pitching to large-scale Web sites that can't afford to crash. The recent rash of site outages caused by "denial of service" attacks has no doubt hammered that point home in the minds of potential Microsoft customers.

"We are going to aggressively attack the reliability issues," Microsoft's Connors said in an address last week. "Windows 2000 has enormously improved reliability. Users are going to love it, and the (chief information officers) of dot-coms are going to love it."

News.com's Michael Kanellos and Jim Davis contributed to this report.