Microsoft’s failed bid for Yahoo was an attempt to adapt to a computing world whose axis is the Internet, not the personal computer.

By STEVE LOHR

The center of gravity for computing continues to move away from the personal computer to the Internet, a change that threatens Microsoft’s dominant position and renders its future uncertain.
With its recent failed bid for Yahoo, Microsoft was taking a gamble, but at least it was a big move, an attempt by the still powerful company to change its habitual comfort zone and adapt to a new world of computing.
Competitive zeal, persistence and patient investment have been crucial to Microsoft’s triumphs over the years, as it built businesses instead of buying them. The formula worked again and again, in personal computer operating systems, applications like word processors and spreadsheets, data center software, and even video game systems.
Microsoft’s competitive behavior is more restrained these days in the aftermath of its earlier antitrust troubles, industry veterans and analysts say. That helps to explain why Microsoft has struggled in this round of competition, especially against Google, which has leapt far ahead in markets like Web advertising.
“Microsoft’s pursuit of Yahoo and its antitrust troubles have the same root, said Timothy F. Bresnahan, an economist at Stanford University and a former Justice Department antitrust official. “The future of mass-market computing is not the personal computer.
Microsoft’s antitrust problems stemmed from its tactics in vanquishing the challenge from the early leader in Internet browsing software, Netscape Communications, in the 1990s. But Microsoft’s campaign in the browser rivalry led to the sweeping federal antitrust suit against the company, filed in 1998, and continuing antitrust oversight in the United States and Europe.
Steven A. Ballmer, 52, Microsoft’s chief executive, must lead this Internet-era shift in strategy and corporate culture without the man who, to many, is still the public face of Microsoft. Bill Gates, the company’s cofounder, chairman and largest shareholder, who hired Mr.
Ballmer 28 years ago, is stepping away from day-to-day work at Microsoft in July to focus on philanthropy.
“Steve Ballmer will be defined by how he manages this tremendous Internet transformation over the next few years, and his record hasn’t been distinguished so far, said George F. Colony, chief executive of Forrester Research, a technology research firm.
For most of his career, Mr. Ballmer has been overshadowed by Mr. Gates. Their friendship started in their days as students at Harvard University; their business partnership began when Mr. Ballmer joined Microsoft.
Though he became chief executive in 2000, Mr. Ballmer has typically been cast as a marketing dynamo, tireless and hyperkinetic. But Mr. Ballmer, colleagues say, has a deep mastery of strategy and finance.
Yet his business skills have not yet helped Microsoft much in trying to catch Google, analysts say. The Silicon Valley powerhouse is the leader of a broad shift toward Internet computing.
That transition began in the 1990s, and Netscape was part of it. But the tilt toward the Internet has accelerated in recent years. People now go online from a PC or cellphone, while most of the processing and services they use are located in vast data centers run by Google, Yahoo, Amazon, Facebook and other Internet companies. Google and others have even begun offering online word processors and spreadsheets as alternatives to Microsoft’s desktop products.
Microsoft has made huge investments in the online field, but its heritage, profits and leadership come from the desktop PC software business, and it has struggled to adapt to the new reality.
Looking at Microsoft today, Mitchell Kapor, an elder statesman of modern computing, is reminded of another industry power that was chastened by a lengthy antitrust struggle and a seismic shift in the technology landscape - I.B.M. in the 1980s and early 1990s, as the mainframe gave way to personal computing. “I.B.M. came out of those years still large and enormously important to its customers, but I.B.M. was displaced by Microsoft, he said. “I.B.M. was no longer the defining company.
“The irony is that what Microsoft did to I.B.M., Google is doing to Microsoft,’’ said Mr. Kapor, founder of Lotus Development, which made the leading spreadsheet program in the 1980s, and the founding chairman of the Mozilla Foundation, developer of the free Web browser Firefox.
In the current round of Internet competition, Microsoft must be careful to not antagonize antitrust authorities.
For example, one ingredient in Microsoft’s formula for success has been to link new software to its dominant PC operating system, Windows, either with proprietary formats or by simply bundling new software into Windows. It did that long ago with its desktop word processing and spreadsheet programs, and it used the bundling tactic most forcefully with Web browsing software in the 1990s.
But in Internet search, Microsoft has not used its dominance in desktop and browser software to favor its offering called Live Search.
“It could have, but Microsoft never did that with Google, said Michael A. Cusumano, a professor at the Massachusetts Institute of Technology’s Sloan School of Management. “The antitrust process made Microsoft more restrained, and it did change the company’s culture.
Now, without Yahoo, Microsoft may seek smaller deals or return to its traditional game plan, relying on patient investment and persistence to build a more competitive online business.
Speaking to a group of investors and analysts in 2005, Mr. Ballmer said no one should doubt Microsoft’s determination. “We will do well, he said. “Whether it’s me or the guy who replaces me because we don’t do well. We’ll keep coming, and we will do well.