Microsoft's stock price is likely to sag if the company doesn't maintain its growth rate. That will take some doing. To maintain its 1996-97 financial performance over the next 10 years, Microsoft's profits must grow a total of 9,100% to $170 billion by 2007. Meanwhile, growth in global IT spending is expected to remain at 9% per year, compounded annually. Most of that growth will be in staff and services, not packaged software, in which Microsoft is dominant.

Microsoft can't keep up its growth rate just by selling more desktop software worldwide. Only 10 countries account for 85% of worldwide IT spending, and that isn't likely to change materially. In most of those countries, particularly the U.S., year 2000-problem budget pressures and the creation of centrally controlled corporate networks will reduce the amount of money opportunity for desktop software. There's less growth available to Microsoft in this business than in the past few years.

What about raising the price of Windows NT? New editions are projected to cost twice as much as the entry-level versions. Nevertheless, at most, NT can only double Microsoft's share of the total cost of ownership from the present $180 per seat per year to $360. That isn't enough to maintain current growth, even if Microsoft's software were to control most of the clients and servers in the universe.

So far, Microsoft's accomplishments in entertainment and publishing aren't impressive. After investing hundreds of millions of dollars in ventures such as The Microsoft Network, children's software and the Expedia Travel Service, those product lines still don't contribute much to the company's profits. The payback from Microsoft's $1 billion investment in cable operator Comcast and $425 million for WebTV technology is very much in doubt.

One bellwether moneymaker for Microsoft is offering around-the-clock online support at a flat rate of $35 per problem. To keep its costs down, Microsoft has subcontracted much of its online assistance to firms in states with low labor costs. That's a good business for Microsoft, because corporate staffs won't be able to match Microsoft's superior expertise, which comes from linking its marketing, service and development organizations. But getting a piece of the desktop support business isn't enough to drive growth. It's worth only about $120 per seat per year.

Microsoft's best bet

Managing corporate desktops and networks is a lucrative business for Microsoft. The company could offer to eliminate more than half of its clients' unnecessary ownership costs through remotely executed diagnostics, preventive online maintenance, asset controls and fault-monitoring techniques. For some clients, the savings could be worth as much as $4,000 per seat per year. Microsoft could then collect a large share of those savings by real-time metering and cyberbilling of chunks of Microsoft software needed to complete any business transaction.

That's a hard strategy to execute. To carry it out, customers must institute tight network rules, install uniform desktop operating systems and enforce standards - all dictated by Microsoft. All corporate applications would become inextricably dependent on Microsoft.

Still, this omniscient, universal solution may be just what executives are looking for. CEOs and CIOs are anxious to regain control of their systems and integrate them; many companies are already taking steps to implement such a centralized approach. Executives will be attracted to Microsoft's centrist and disciplined view of how to manage information if it enables them to eliminate the chaos of their homegrown systems. Bill Gates' superb marketing engine will surely claim that Microsoft offers the only feasible way to achieve universal connectivity and enterprisewide interoperability. Only a market-dominant firm, operating under unified leadership and possessing global capabilities, can deliver that capability, they will say.

A historian's admonition

My advice is exactly what I give to anyone who buys a home or enters into an outsourcing contract: After you move in, how costly will it be to move out? Corporate executives have finally learned that IT spending isn't merely an annual expense but a lasting and costly commitment. Questions will be asked about the ultimate costs of overdependency on a single and powerful vendor. Computer executives who are tempted to put all their faith in Microsoft ought to be ready to answer to that.