Win 98 hits the desktops Computer operating software upgrade goes on sale with muted hoopla NEW YORK (CNNfn) - In the months before its release, Microsoft Corp. made a conscious effort to downplay the significance of Windows 98, pitching it as merely an evolutionary upgrade of Windows 95 rather than a revolutionary product.

Now that the product is out, the Microsoft marketing machine is in full swing and Microsoft Chairman Bill Gates is out touting its advantages.

Gates: Sales stronger than expected

In an interview with CNNfn Thursday, Gates said early results indicate sales of Windows 98 upgrades have been stronger than expected.

"Windows 98 is a pretty common sense update," he said. "It doesn't change things in a difficult fashion like Windows 95 did so you can install it in less than 30 minutes. We're quite optimistic about this, the early results are much stronger than we expected, the word of mouth is very strong, and in terms of numbers, all the new PCs will be coming with Windows '98 as well."

Gates declined to divulge Microsoft's sales targets for Windows 98 but he said the PC market is expected to grow 15 percent this year and that Windows 98 will be on virtually all those machines.

"Windows 98 has gotten really strong reviews from most people. You're never going to get perfect reviews, but people have seen the speed, [Internet] integration, reliability and hardware support and said it makes a lot of sense," he said.

Gates said more than 150,000 people tested Windows 98 and that Microsoft wouldn't have released the operating system this week if those testers had reported major problems and if it wasn't confident it would perform correctly.

Windows 98 launch low key

Although Microsoft is touting the added features of the new product, the Windows 98 launch was low-key compared with the Windows 95 debut, which featured celebrities such as Jay Leno and constant television commercials that used the Rolling Stones song "Start Me Up" as their anthem.

Where Windows 95 brought many new features Windows 3.1 didn't have, Windows 98 is largely a collection of bug fixes combined with additional support for new devices that have come on the market since Windows 95. The $90 Windows 98 upgrade allows users with television tuner cards to watch TV while using their PCs and even browse customized program guides.

It also offers enhanced Internet functions, making it easier to set up an Internet connection for the first time. Internet Explorer can also be used to browse the contents of the computer's hard drive in addition to browsing the Web.

Analyst reaction mixed

Industry observer reaction to the upgrade was mixed, with some saying most computer users shouldn't feel compelled to upgrade.

"It represents many bug fixes, many corrections to previously known problems, it also represents the first time that the convergence of consumer electronics and computers is underneath the auspices of one computer operating system," said David Berlind, editorial director of Computer Shopper Magazine.

"If they already have a computer system running Windows 95, there's not a lot of reason for them to go out and buy Windows 98," said Chris LeTocq, software analyst at Dataquest. "In fact, we expect the majority of Windows 98 upgrade sales to go to PC enthusiasts." (To see one enthusiast peruse the shelves in a 963Kb Quicktime movie, click here).

Market research firm Dataquest - a division of Gartner Group Inc. (GART) expects the upgrade to sell nearly 57 million units this year, adding $400 million to Microsoft's (MSFT) earnings.

Neil Herman, technology software analyst at Salomon Smith Barney, is actually predicting higher sales for Windows 98.

"Today, there are 35 million PCs out there capable of running Windows 98. When Windows 95 was released, there were less than 10 million, so this could be a bigger upgrade cycle at retail," he said.

Herman characterizes Windows 98 as more than a tune-up, saying it will enable computers to run faster and more efficiently.

The release might actually help increase PC sales in the months before this fall. Aside from Christmas, fall is the biggest period of the year for PC sales because many are sold for school-related use. (136K WAV) or (136K AIFF)

Computer retailers agree.

"We really think that this is the biggest single release of any technological product in the last three years," said Larry Mondry, executive vice president of CompUSA (CPU). "So we think this is going to be very significant for the computer industry, for CompUSA, and, of course, for our customers."

Microsoft has been the source of considerable attention in Washington, where antitrust regulators have accused the company of trying to use its dominance in the operating system software market to bully customers into using its Internet Explorer browser.

However, Gates said the government's argument was weakened Tuesday when an appeals court struck down a 1997 injunction that prevented the software giant from including Internet functionality into Windows 95.

While the ruling did not pertain directly to the government's broader antitrust case against Microsoft, Gates said the court's ruling cuts to the heart of the Justice Department's case.

"The key point is the very black and white language from the appeals court that says that improving the product is something that's great and the courts are not going to interfere with that," he said.

"The heart of their case was trying to say that we couldn't put new features into Windows and, in particular, great Internet support. So the heart of their case has been taken away. We're hoping it will get resolved. Certainly it is a very positive thing to help us get Windows 98 and make it clear this is a good advance," he said.

Gates said Microsoft (MSFT) wasn't specifically aiming at archrival Netscape Communications Corp. (NSCP) or any other competitor in particular when it decided the new features that Windows 98 would include. (437K WAV) or (437K AIFF)

Gates reiterated that all Microsoft was lobbying for was the ability to innovate.

He also said AT&T Corp.'s (T) decision this week to merge with cable company Tele-Communications Inc. (TCOMA) (TCOMB) will be a positive for Microsoft since TCI uses Internet set-top boxes that run its Windows CE operating system.

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