Microsoft has no plans to sit back and rest on the US$3.45 billion it earned in fiscal 1997 - not while there are still customers to be won.
Microsoft's top managers are thinking hard about the competition, with a special focus on Sun Microsystems and the development community.
In fiscal 1998, which started July 1, Microsoft will spend billions on sales and marketing, with $200 million earmarked just for increasing the head count of its marketing and sales divisions by 1,500 employees.
Total sales and marketing expenditures, expected to be several billions, will outpace revenue growth for the first time, says Greg Maffei, new chief financial officer.
As part of that plan, Microsoft will build an Applications Development Customer Unit, with 600 employees focused on gaining more and more attention from the software development community.
"We need to put more resources into reaching out to the developer comunity to convince them to build applications around the Small Business Server, SQL Server and Exchange and take mind share away from Notes and Oracle," says Steve Ballmer, Microsoft's executive vice president of sales and support.
In part the new unit will be charged with evangelising the "depth and breath" of the company's product portfolio, and providing technical and business support for independent software developers. More important, it will try to establish Microsoft's Back Office suite as the platform on which developers should build business applications, Ballmer says.
Ballmer cautions financial analysts that turning developer attention to SQL Server and Exchange and away from Oracle applications and Lotus Notes will be a "slow-burn proposition." But he leaves little doubt that Microsoft is determined to increase sales of Windows NT Server at the expense of Unix servers.
Microsoft will invest heavily to grow sales of Windows NT server, currently the smallest revenue generator for the software giant, compared with Windows 95 and the applications business, Ballmer says.
And gaining sales for Windows NT is only one of many competitive battles that Microsoft plans to take on in fiscal 1998.
"This is a critical year for us," Ballmer says. "We have to demonstrate the cost and value proposition of the PC, otherwise the NC has a chance to come in and cannibalise the market, which will retard PC growth," he says. Some of Microsoft's larger accounts, he added, are prototyping and testing network computers.
Ballmer's boss, Microsoft CEO and Chairman Bill Gates discounts the viability of the NC, charging that NC stands for "not compatible."
"We take the NC very seriously, but it has enough uniqueness that I doubt it will have much of a dramatic impact," Gates says. He adds that Microsoft has been able to convince users who have tested NCs that its Windows Terminal is a better product.
Aside from defending the PC market against a possible encroachment by NCs, Microsoft will focus on building market share for its Internet Explorer Web browser.
"Growing market share to 30% within a year doesn't happen very often," Gates says. "It requires innovative technology."
The upcoming release of Explorer will aid the company in its quest to battle Netscape. in the Web browser market, he says.
Ballmer points out that the effort again will require substantial investments in sales and marketing operations, while expectations for revenues from Internet Explorer sales will be small to none.
Microsoft also has to continue evangelising its ActiveX and Component Object Model technology to the developer community and defend itself against Sun's attempt to position Java as a middleware operating system. Java, which Ballmer calls a good programming language but a very buggy product, is only one reason why Microsoft executives have recently been studying Sun's business in depth.
Microsoft is also looking to sell more of its Windows NT Server software into the telecomunications market and to Internet service providers, two areas in which Sun has been strong in the past. Describing Windows NT as a good alternative to Unix servers for ISPs, Microsoft will put more resources toward courting Sun resellers and developers, Ballmer says.