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Platforms: a multi-segment market model.

We don't spend much time at the race track, but we've always managed to bet (and mostly lose) a few dollars on the Kentucky Derby. This experience taught us one not-so-obvious lesson: When every horse in the race is a great runner, picking a likely winner becomes really, really tough.

That's pretty much the problem that software developers face in the current Platform Derby. Virtually every one of the contenders--Windows, OS/2, NT, Unix, Geos, PenPoint, the new RISC platforms, the various palmtop and "personal digital assistants," Taligent, and even DOS--has a reasonable shot at ending up in the money; there are a few longshots but no obvious scratches in this year's race.

The trouble is, software companies do have to place bets with their R&D budgets. The market share projections we've seen so far don't offer much guidance; typically, they sum up the whole PC marketplace with a single undifferentiated pie chart, when in fact operating systems and platforms usually compete in very distinct segments.

So we've tried to put together a different view of the Platform Derby-- in effect, segmenting the market into a series of smaller races that are easier to handicap. We don't pretend that what follows is based on rigorous methodologies; we've just tried to pick out a few relevant trends and numbers that we think shed some light on where the market is heading:

The 32-bit segment: The high end of the PC market--defined primarily by 32-bit, quasi-workstation machines--probably represents an installed base of less than ten million machines worldwide. But these machines are "strategic" in the sense that they're used by early adopters, developers of mission-critical and downsizing applications, and power users who will influence future mainstream markets. Thus, it's not surprising that Apple (Taligent), IBM (OS/2), Microsoft (Windows NT), Sun (Solaris), NeXT and others are investing heavily to build share in relatively low-volume markets. Even if ordinary users never need a 32-bit, object-oriented word processor, there's likely to be a high-end trickle-down effect that will help shape the next generation of mainstream applications.

So who's winning in the 32-bit segment? Arguably, OS/2 has the strongest lead today, with close to a million high-end users. IBM's notoriously inept marketing and sluggish development process don't inspire confidence that OS/2 will hang on to this lead, once Windows NT and other object-based environments debut. But an installed base counts for a lot in the software world, and IBM has at least another year to lock in key customers before serious competition arrives.

The desktop mainstream: The classical desktop PC is a standalone machine (or a LAN client) that's used mostly by desk-bound office workers. Here, it's clear the race is effectively over; Windows has won. Especially among Fortune 1000 customers and hardware OEMs, Microsoft has established Windows as a de facto standard for new machines (the 286 installed base is more problematic), and--perhaps most importantly--the sexiest thirdparty applications now routinely show up on Windows rather than on the Macintosh. We're not convinced that there are currently more than 3-4 million hard-core Windows users, but these users tend to be extraordinarily active software buyers; they've contributed to a bandwagon effect that will eventually carry Windows onto most of the right desktops. However, the total desktop market--which includes home, small business, and clerical workers--is so vast that even the 10 million Windows users that Microsoft claims are little more than a niche market. (In fact, we don't expect Windows to reach 50% penetration of the total installed base until the next decade.) Much of the current character-based DOS installed base consists of users who are slow to upgrade their machines or buy new software, so they're less attractive as customers. But the nonWindows installed base remains so large that we doubt any company will achieve market dominance with a Windows-only product strategy.

* Mobile machines: According to our colleagues at the California

Technology Stock Letter, 42 million U.S. employees (almost 40%

of the workforce) spend much or all of their time in the field,

away from traditional offices and desks. These mobile workers--

for example, service technicians, sales reps, plant managers,

lawyers, architects, and scientists--have created an explosive

new market for portable and small-scale computing devices.

* Go Corp. (PenPoint), Apple (Newton), GeoWorks (Geos) and several other system vendors have predicted--correctly, we think--that the mobile market creates a major opportunity to establish new platforms. But it's less clear how fragmented this market will be. Windows, because of its expensive hardware requirements, probably won't be a significant factor--but our guess is that pen-only machines and special purpose "personal digital assistants" also won't be the big winners in this segment. Our crystal ball is a bit cloudy here, but we think a current dark horse--the GeoWorks Geos environment--could end up as the one truly generic platform for mobile and small-scale machines.

The service frontier: Retailing and other service industries aren't usually considered part of the PC mainstream, but we've started to see a dramatic shift from proprietary hardware platforms to generic PC-based systems in almost every major service automation category (Soft.letter, 5/11/92). So far, only a handful of software companies have found ways to exploit these markets, but there is clearly an emerging opportunity for massmarket applications that will run on electronic cash registers, customer service workstations, and similar devices. Again, it's tricky to predict which operating systems will prevail (currently, the market is a hodgepodge of DOS and Unix derivatives). But we don't see much customer interest in graphical platforms; initially, we expect that the most successful applications will be character-based and optimized for low-end hardware. It's worth noting, incidentally, that these segments do not share the same marketing channels. The desktop mainstream is well served by resellers and direct response channels; buyers tend to understand and trust mass-market products. By contrast, mobile users seem to expect software to be bundled with hardware, so the front-runners are likely to be developers who understand OEM channels and fleet sales (Soft.letter, 5/26/92). The service automation market is another distribution bottleneck: Customers tend to be cautious and unsophisticated, and they deal primarily with vertical market vendors. But the most difficult marketing conundrum is probably the 32-bit segment. We're not sure anyone will ever figure out a quick and efficient way to reach large numbers of high-end platform influencers--but we're pretty sure this race can't be won without a pretty hefty corporate sales force.
COPYRIGHT 1992 Soft-letter
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:the battle between Microsoft Windows, OS/2, Windows NT, Unix, Geos, PenPoint, reduced instruction set computer platforms, hand-held computer software, and DOS
Article Type:Cover Story
Date:Jul 31, 1992
Previous Article:Postscript.
Next Article:How to audit service and support quality.

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