Notes on the graphical revolution.

NOTES ON THE GRAPHICAL REVOLUTION The Windows 3 rollout: We're not sure who keeps track of these things, but Microsoft makes the plausible claim that its rollout of Windows 3 (which began yesterday with an eight-city satellite hookup, 6,000 attendees, and a $10 million promotional budget) will set new records for hyperbolic spending. No stranger to hyperbole himself, Bill Gates says Windows 3 represents nothing less than "a major milestone" in software history, a product that "puts the 'personal' back into millions of MS-DOS-based computers."

Even discounting the hyperbole, however, Windows 3 is a milestone, and the splashy, Apple-style rollout--despite seven years of false starts--feels just about right. To us, the critical test of any new environment is what tools it gives applications developers; by this test, Windows 3 seems to be the real thing. We've been looking at sneak previews of new Windows products for several months now, and much of what we've seen is genuinely exciting software--innovative, feature-rich, and beautifully executed. Unlike its big brother, OS/2, Windows 3 certainly won't suffer from an applications shortfall.

Still, there's one question that troubles us: How fast will the Windows 3 market develop? That's a key issue for developers, and the answers are all over the map. Microsoft itself says that it has already moved 100,000 retail copies of Windows 3 into the retail channel; meanwhile, the company has begun selling a $50 upgrade package directly to anyone who owns even a run-time copy of Windows 2. There are also more than a dozen bundling and co-marketing deals with hardware OEMs already inked: Zenith, for example, will include Windows 3 with every machine it sells. Adding all this activity up, various market researchers and Wall Street analysts have decided that Microsoft could sell as many as six to nine million copies of Windows 3 during the next year.

The trouble with projections like these, of course, is that the number of active Windows users has always been dramatically less than the number of copies Microsoft has been able to pump into the marketplace. A more realistic estimate of the ramp-up of actual Windows 3 users, we believe, is about 100,000 per month for the next year or so, a rate that should put the Windows 3 installed base over the million-user mark by early 1991. (Practically speaking, the existing Windows 2 installed base is a writeoff, since hardly anyone is now developing products for "old" Windows users.)

One constraint on the growth rate of the Windows installed base is hardware. Windows 3 demands a high-end system--preferably with two megs of memory, VGA graphics, and a hard disk. Out of a worldwide installed base of about 50 million PCs, probably no more than 15 million are Windows-capable machines; of these, we suspect at least two-thirds are now dedicated almost exclusively to non-Windows applications (Lotus 1-2-3, dBase, WordPerfect, AutoCAD, etc.) and thus don't represent a near-term target for Windows 3.

The bottom line: Even if Microsoft gets Windows 3 onto most available desktops, developers probably can't count on more than three to four million active users within the next two years--a market that happens to be just about the same size as the current Macintosh installed base.

That's still incredible sales potential for a product that, by itself, doesn't actually do much. But it's ironic that some of the most enthusiastic Windows 3 developers are refugees from the Macintosh market, which they claim is still too small to support more than a handful of successful companies. By developing for two platforms, many of these developers certainly will reach a larger combined market. But does Windows 3 alone represent an opportunity that's substantially bigger than the Mac market? Probably not.

Lotus joins the graphical mainstream: Reading how the trade press covered the announcement of Lotus's new graphical spreadsheet last week, we felt like we'd awakened in a parallel dimension. Judging from the headlines, the big news was a Windows 3.0 announcement. "Lotus commits to 1-2-3 for Windows," CRN proclaimed on its front page. "Lotus Promises 1-2-3 for Windows 3.0," said PC Week. "Windows pulls Lotus into corner," Computerworld announced. And "Lotus spreadsheet to accommodate Microsoft program," the Wall Street Journal said.

Well, we were there, and that's not quite what happened. Although Lotus did issue a deliberately vague "statement of direction" about developing a Windows version of 1-2-3, the product Lotus actually showed was a graphical upgrade of 1-2-3 called Release 3.1. Release 3.1 is Windows 3 "compliant" (that is, it will run under Windows in full screen mode and has some cut-and-paste capabilities). But Release 3.1 is by no means a true Windows application. Instead, it relies on a proprietary graphical environment that Lotus just acquired from a small French company called Aleph 2. The Aleph 2 environment has been marketed in the U.S. as an add-in called Impress; now, integrated into Release 3.1, the Aleph 2 technology will give Lotus users a fully interactive, WYSIWYG display with mouse support, fonts, and other publishing features. Moreover, the Release 3.1 interface definitely isn't Windows-like: Lotus has preserved all of the traditional 1-2-3 command-line menus and prompts. There are no pull-down menus, no dialog boxes, no Windows run-time code running behind the scene.

To us, the real news of last week's announcement is that Lotus has managed to move Release 3, its flagship product, into the graphics world without requiring (or endorsing) Windows. Assuming that Lotus incorporates the Aleph 2 technology into the rest of its product line--and perhaps licenses this technology to third-party developers--the issue of GUI standards is bound to come awake again with a vengeance. So far, Microsoft has made a convincing case for Windows as a de facto look-and-feel standard for graphical applications. But the reality is that there are still far more people (somewhere between 10 and 20 million users) who have fingertip knowledge of the Lotus command line interface. If spreadsheets are the compelling application that always defines new platforms, those millions of 1-2-3 users certainly deserve some vote about which interface feels most "intuitive."

In fact, Lotus vice president Frank Ingari says that Lotus customers are already divided in their reaction to Release 3.1's interface. MIS managers "are pounding the table" over the product's non-standard (i.e., non-Windows) interface, he says. But actual 1-2-3 users are delighted to hear that they won't have to re-learn all their 1-2-3 skills to get the benefits of a graphical spreadsheet.

Either way, of course, Lotus wins. If its customers insist on a Mac-like look, Lotus will have Windows and Presentation Manager versions. If customers want a more traditional 1-2-3 look, Lotus will have a high-quality graphical spreadsheet that works the way 1-2-3 has always worked. Whatever the choice, the checks go into the same bank account.

Similarly, we expect to see other major software developers--including WordPerfect, Ashton-Tate, and AutoDesk--take a similar multi-platform approach. They'll offer Windows versions side-by-side with proprietary interfaces--and let the market decide which standard to endorse.

Apple fights back: Jim Davis, Apple's director of systems software, has also been on the road lately, talking to analysts (ourselves included) and trying to put the Windows 3 hoopla in perspective. Apple's new System 7--currently in alpha testing, and due to ship by the end of the year--is vastly superior to Windows 3, Davis argues. "We've been at this business for six years," he says, pointing out that System 7 is a more mature environment in such key areas as file handling, interprocess communications, help systems, and support for workgroup activities.

No question: System 7 is full of neat stuff. We've become pretty enthusiastic about Windows 3, but we have to admit that Apple really does understand user interfaces a whole lot better than anyone else in this business. (The difference is mostly one of corporate culture: Apple is filled with people who care passionately about fits-and-finishes issues; Microsoft is an engineer's playground, where writing good specs seems to matter more than "soft" human factors concerns.) Moreover, given the inherent limits of the Intel-based marketplace--especially the hodge-podge of conflicting hardware and system-level standards--we doubt that even Microsoft ever will be able to close the gap.

But Apple still has reason to worry. System 7 has a clear lead as a better desktop environment, but users tend to care a lot more about their experience with individual applications. (DOS is a lousy example of an interface, but that hasn't stopped PC users from adopting DOS-based products.) Apple has to deliver great and useful applications on the Mac; if these aren't available, then all of System 7's nifty features are ultimately irrelevant.

Moreover, there's even a problem for Apple if developers offer essentially identical versions on both platforms, because the Mac then becomes an undifferentiated commodity machine (at a higher price point). We haven't done any scientific sampling on this question, but we have talked to a dozen or so Windows developers lately who have roots in the Mac market. The consensus seems to be that Windows 3 has now achieved reasonable parity with the Mac as a development environment and as a market opportunity. Generally, porting Mac applications to Windows seems to be fairly easy: Ashlar's Martin Newell said his programmers took about ten days to rough out a Windows 3 version of Vellum, a sophisticated CAD package originally created for the Mac. Clearly, the barriers are falling fast.

Apple's immediate response to this challenge has been to rethink its traditional strategy of focusing on high-performance, higher-priced hardware. John Sculley has been telling Wall Street analysts to expect lower profit margins as Apple begins rolling out inexpensive, entry-level machines designed to capture larger market share for the Mac. Expanding the Mac's market share may convince a lot of developers that they're better off sticking with Apple, especially if the Windows 3 market takes a while to reach critical mass (as we believe).

But we also suspect that Apple needs more than a low-cost Mac to maintain an applications lead over Windows. The real software shortfall is in power-user applications--high-performance, feature-rich titles that stretch the limits of the operating environment. We've pointed out (Soft*letter, 2/3/90) that Mac software typically clusters at the lower end of the price spectrum, while more DOS-based titles show up at premium prices (over $1,000). That's no accident: In the past, it made sense for Apple to focus its evangelism dollars on mass-market applications--word processors, spreadsheets, graphics and desktop publishing programs--that were likely to yield large hardware sales.

But the mass markets are now getting crowded. The next applications battle, we believe, will be fought on the fringes of the workstation and minicomputer world. Apple has to find a way to evangelize in literally dozens of small niches, where developers are still deciding which PC platform to support. If this group picks Windows and OS/2 instead of the Mac, Apple really could be in deep trouble.