Microsoft and Adobe: Headed for a Shootout on the Web

Is this a duel till the death or just a ex-lovers spat?

Redmond and Adobe Inc. are on a collision course as they seek to dominate a new kind of software that will change how personal computers and the Web work together.

The companies have been partners in the past, and Adobe is one of the largest makers of software for computers running Microsoft's Windows operating system. The companies have also tussled before, but they have generally stayed in their corners of the tech arena.

Today, though, each company plans to introduce software that falls squarely on the other's turf and sets the stage for a broader battle over how Internet services and software will be built in the future. Both want to be the key supplier of cutting-edge software that handles functions like video and animation on the Web.

EBay is working on a program based on Adobe's new software.

Microsoft today plans to roll out a test version of its Silverlight software that can be used to build advanced programs that run on the Web. That's an area Adobe has dominated with products like its Flash software for Web animation and video.

Adobe, meanwhile, plans to preview new software called the Adobe Media Player, a free program that will let people play videos on their personal computers, which is the domain of Microsoft's Windows Media Player, among others. Adobe is also readying technology code-named Apollo that will enable companies to build Flash programs that will be installed on a PC but pull information from the Web.

The two companies' new programs will help Web sites handle video, animation and other features more dynamically than they can today. Major League Baseball, for instance, plans to use Microsoft's Silverlight to add real-time scoring, statistics and other interactive features to the 15 or so live baseball games it streams over the Internet daily, company executives say. Online auctioneer eBay Inc. is working on a program based on Adobe's Apollo that will let users buy and sell items more efficiently. The program, expected within a few weeks, will be connected to the Web so that it can constantly update data. It will also let users store several weeks of search results on their PC hard drives and quickly thumb through items for sale in one window without having to page back and forth in a Web browser.

"The future battle lines are going to be drawn between Microsoft and Adobe in this space," says Chris Swenson, an analyst at NPD Group, a research firm. The market for this kind of "digital content creation" technology grew 16% to $3 billion in 2006 from $2.6 billion the previous year, according to research firm Jon Peddie Research.

Adobe's new software gives the company a chance to bring in new revenue. While computer users can download Adobe's Flash Player free of charge, Adobe sells the software used to build the online services and software that are based on Flash.

Microsoft's move is a new chapter in a long history of defending the company's crown jewels: the operating systems that have been the foundations for other programs to run on. Windows has long been Microsoft's largest source of revenue and profit and the cornerstone of most of its other software. Over the years, when any company challenged Microsoft's operating system, the software giant threw its full weight into fending off the interloper. Ten years ago, that rival was Sun Microsystems Inc. with Java, a programming language for writing software that could run outside of Windows. Another rival was Netscape, whose Web browser presented a threat that Microsoft eventually batted down with its own browser.

Now Adobe's Flash is becoming a foundation for Internet applications that won't necessarily work only with Windows PCs. Microsoft is "afraid that Adobe is going to start convincing corporate developers to use Flash to start developing Web applications," says Greg DeMichillie, an analyst at the research firm Directions on Microsoft. "It's the Java threat but with better technology."

Microsoft will still promote online services that are tightly tied to the Windows operating system, but increasingly the company realizes that it has to build software that's compatible with other operating systems, too. Says Microsoft Senior Vice President Bob Muglia, "If we don't come out there and provide innovation for customers, somebody else will."

At the center of the battle is an evolution in how software interacts with the Internet. Historically, software developers built programs installed on computers, while Web designers created Web sites.

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