By STEVE LOHR Redmond, Wash.
THINK back to Round 1 of the Internet, when things really got rolling in 1995. The computing landscape was shifting, and a cool, fast-growing young company symbolized the new order: Netscape. At the time, Microsoft looked to be a lumbering old war horse, trapped in the yesteryear of desktop personal computer software, word processors, spreadsheets and operating systems. It seemed, in other words, so1980's.
But, of course, Microsoft emerged a winner. It embraced the Internet and vanquished the Netscape threat with hard work, ingenuity and strong-arm tactics that a federal court ruled violated the nation's antitrust laws. Microsoft's shares soared to a record high at the end of 1999.
The Internet, Round 2, is now under way. Again, the computing terrain is changing remarkably, helped along by free software like Linux and the spread of high-speed Internet access. Today, all kinds of computing experiences can be delivered as services over the Internet, often free and supported by advertising. Clever Internet software can now turn flat, view-and-read Web pages into snappy services that look and respond to a user's keystrokes much like the big software applications that reside on a PC hard drive. New companies are even sprouting up to offer Web-based word processors and spreadsheets, products long regarded as mature - and long dominated by Microsoft's desktop programs.
Champions of the Internet services model range from I.B.M. to start-ups. But the totemic company in this next big evolutionary step in computing is Google, the Internet search power whose ambitions appear to be growing as fast as its profits.
And Microsoft? It once more finds itself surrounded by doubt and dismissed as a laggard. Some of its own senior engineers have defected to Google and elsewhere, and its stock price has barely budged in three years, despite solid earnings growth, because others appear to be winning the race for the future.
The familiar pattern of a decade ago begs the question that Bill Gates was asked when he met last month with a group of executives and journalists from The New York Times: Will you do to Google what you did to Netscape?
Mr. Gates, the Microsoft co-founder and chairman, paused, looked down at his folded hands and smiled broadly, as if enjoying a private joke. "Nah," he replied, "we'll do something different."
The man whom Mr. Gates is counting on to make a difference is Ray Ozzie, a soft-spoken 50-year-old who joined the company just eight months ago. He has the daunting task of galvanizing the troops to address the Internet services challenge, shaking things up and quickening the corporate pulse.
The forces arrayed against Microsoft, analysts say, may well prove more formidable than ever. "The problem Microsoft faces today is that there is a totally different model emerging for how software is created, distributed, used and paid for," said George F. Colony, the chairman of Forrester Research, a technology consultant. "That's why it's going to be so difficult for Microsoft this time."
Yet there are optimists. Big industry shifts, they say, create opportunity. Inevitably, they note, Internet computing erodes Microsoft's power to set technology standards, but the company can still benefit as the overall market expands. That's what happened in the 1990's. They say that if Microsoft shrewdly devises, for example, online versions of its Office products, supported by advertising or subscription fees, it may be a big winner in Internet Round 2.