Microsoft Is Losing Some Of Its Elbow Room

"They are not on the ropes," said Bill Whyman, an economist and analyst for the Precursor Group, an independent financial research firm. "I think their prospects are very strong."

Whyman is particularly excited about the upcoming Office 12 release, which he said will turn the software package "into a rich, smart, networked front end" that many businesses will use as their primary computing environment, for both online and off-line work.

These new product offerings will boost the company's already healthy bottom line, Whyman said, but he agreed that some of Microsoft's slowing growth curve is inevitable.

"They're not giving out monopolies anymore, so get over it," he said. "Anything Microsoft does will have lower margins" than it once did.

Throughout its nearly 25-year history, Microsoft has faced moments of major challenge, most dramatically when the Internet first burst onto the public scene in the mid-1990s. Microsoft's fierce response to the threat from browser pioneer Netscape Communications Corp. included actions that ran afoul of antitrust laws and nearly resulted in a court-ordered breakup of the company.

Each time, Microsoft persevered, won the battles and kept growing. And with a cash hoard of $40 billion, it has resources almost no challenger can match.

But skeptics think a combination of factors make this moment in time different.

When its dominant desktop software was the only game, Microsoft could dictate the direction of the development of many related programs and tools. Developers who wanted their creations to get wide use had to work on software that would work in the Windows environment.

Now that the Internet is a mature platform for writing and distributing software, it is teeming with creators who often work collaboratively to develop programs that are deliberately not oriented toward Microsoft.

"When we were there, our influence on where things were going was dramatically higher because of the lack of an open-source community, standards bodies, and the inability of developers at-large to communicate," said Rick Segal, a Microsoft employee in the mid-1990s who now is a partner in a Canadian venture capital firm. "Those days are so over, it's frightening."

In fact, Segal said, he has informally surveyed many ex-Microsoft engineers who have left the company to strike out on their own. A surprising number, he said, are not interested in pursuing programs that would take advantage of Microsoft's platform.

"I found they were not only leaving the company, they were going ABM . . . anything but Microsoft," Segal said. "They were actively producing products that Microsoft would consider competitors."