Microsoft

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Microsoft's ambitions are anything but small. The world's #1 software company provides a variety of products and services, including its Windows operating systems and Office software suite. The company has expanded into markets such as video game consoles, interactive television, and Internet access. With its core markets maturing, Microsoft is targeting services for growth, looking to transform its software applications into Web-based services for enterprises and consumers. Microsoft has reached a settlement to end an ongoing antitrust investigation, agreeing to uniformly license its operating systems and allow manufacturers to include competing software with Windows.

Late in 2005 the company announced a reorganization designed to streamline its decision-making and speed up execution across its divisions. Its newly formed units include Microsoft Platform Products and Services, Microsoft Business, and Entertainment and Devices.

While desktop applications and platforms remain the cornerstone of its operations, Microsoft has inexorably expanded its product lines, which include video game consoles, enterprise software, computer peripherals, software development tools, and Internet access services.

The company's ambitious nature has come with a price, however, culminating in the US government prosecuting Microsoft for antitrust violations. An initial ruling to split Microsoft into two companies was struck down, leading to a tentative settlement between the company and the US Justice Department. Under the terms of the settlement, Microsoft agreed to uniformly license its Windows operating systems, cease to offer exclusive contracts with manufacturers, and allow competing software to be included with its operating systems.

Microsoft has also reached major settlement agreements with Netscape (paying the company about $750 million); Sun Microsystems ($1.6 billion in addition to royalty payments on certain technologies); Novell ($536 million to settle a suit tied to Novell's NetWare software; Novell has filed another antitrust suit related to its WordPerfect software); Gateway ($150 million); IBM ($775 million and extending $75 million in credit towards Microsoft software deployment), and RealNetworks ($761 million in cash and promotions).

While Microsoft has worked to settle the majority of its antitrust issues, an ongoing investigation is still pending by the European Union (EU). In March 2004 the EU fined Microsoft $613 million and ordered the company to offer European computer manufacturers a version of Windows stripped of its proprietary media player software. Microsoft has announced plans to appeal the decision.

Despite the litigation that has plagued it in recent years, the company has continued to forge ahead in its strategy to extend its core software products into Web-based services for businesses and consumers. By transforming itself from a traditional software provider to a broader technology services and media company, Microsoft hopes to position its operating systems, software, and services as a de facto standard for accessing, communicating, and doing business over the Internet. The company also operates in the Web search space, directly challenging incumbents such as Yahoo! and Google.

Microsoft has used selective acquisitions (including the purchases of Navision and Great Plains Software) to expand its enterprise software offerings, which include applications for customer relationship management and accounting. Along with rival enterprise software providers such as SAP and PeopleSoft, Microsoft is increasingly targeting small and midsized businesses. In 2005 it acquired collaboration software maker Groove Networks (founded by Lotus Notes developer Ray Ozzie), anti-virus security provider Sybari Software, email security developer FrontBridge Technologies, and identity management software provider Alacris.

In 2004 the company announced plans to spend up to $75 billion of its cash reserves over four years, including boosting its dividend payments and repurchasing up to $30 billion of its own stock.

Chairman Bill Gates owns about 10% of Microsoft; CEO Steve Ballmer owns nearly 4%.

Sun Microsystems

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When it comes to network computing, it's hard to find an area where the Sun doesn't shine. Sun Microsystems is a leading maker of UNIX-based servers used to power corporate computer networks and Web sites. It also makes workstation computers and a widening range of disk- and tape-based storage systems. Unlike most hardware vendors, Sun makes computers that use its own chips (SPARC) and operating system (Solaris). Its software portfolio includes application server, office productivity, and network management applications. Sun also developed Java, a programming language for creating software that can run unchanged on any kind of computer.

Sun got a leg up on competitors by optimizing its hardware for serving Web sites and by capitalizing on the dot-com explosion, but the subsequent e-recession has leveled the playing field for competitors. The company's aggressive and outspoken CEO, Scott McNealy, has waged a public battle with Microsoft over the use of Sun's Java programming language. But Microsoft's greatest threat to Sun has been in the server arena, where competitors look to undersell Sun's UNIX-based offerings with servers based on the Wintel platform (Intel processors, Microsoft's operating system). In addition to offering Windows machines, Hewlett-Packard and IBM both sell servers running their own versions of UNIX. Sun, which supports UNIX, Windows, and Linux-based products, expanded its managed service offerings when it acquired SevenSpace early in 2005.

In 2004 Sun and Microsoft finally settled a long-running dispute involving antitrust and patent claims. Microsoft agreed to pay Sun $1.6 billion, and Sun announced plans to incorporate Windows into some of its server lines. At the same time Sun announced restructuring plans that included promoting software EVP Jonathan Schwartz to president, and eliminating about 9% of the company's workforce. Soon after Schwartz's promotion the company announced a number of changes to its top management.

Sun continues to expand its offerings. With companies such as Dell nipping at its heels at the low end, Sun countered with its own line of inexpensive servers that use Linux (a free version of UNIX) and processors from AMD and Intel. It has also made inroads into high-end data centers, a market where IBM has been entrenched with its long history of providing mainframe computing. In 2004 Sun and Fujitsu announced plans to extend their long-standing partnership and eventually merge the development of their SPARC-based product lines. Sun also formed a new unit focused on government customers.

Sun's software division develops application server software that competes with offerings from BEA Systems, IBM, and Oracle. While the company remains firmly committed to Solaris, it has adopted Linux for select low-end server deployments and developing desktop PC products. Early in 2005 Sun announced the introductory stage of its OpenSolaris project, which aims to make Solaris available on an open-source basis. The company also acquired Tarantella, a maker of application access software, for about $25 million. Continuing its software push, Sun purchased enterprise application integration specialist SeeBeyond Technology for $383 million in cash. It also partnered with fellow Microsoft adversary Google, agreeing to bundle the search giant's browser toolbar with its Java Runtime Environment software; the deal has generated wide speculation that the companies could be laying the groundwork for more significant collaboration.

On the storage front the company has partnered with Hitachi Data Systems to bolster its offerings (pitting it against yet another tech titan, EMC). Its acquisition of startup Pirus Networks furthered Sun's N1 strategy with storage virtualization technology. N1, which is similar to initiatives embraced by IBM and Hewlett-Packard, encompasses a comprehensive effort to build hardware and software that simplifies resource management for network administrators. The company also acquired the assets of network-attached storage (NAS) system provider Procom Technology for approximately $50 million in cash in 2005. Later that year Sun acquired Storage Technology (more commonly known as StorageTek) for $4.1 billion in cash. It plans to integrate the company, which specializes in tape-based systems, into its storage division.

About 60% of Sun's sales are to customers outside the US.