Microsoft’s glory days are, if not behind it, at least numbered, according to most of the Computerworld panelists. And that probably goes for the other goliaths of IT as well. But even though our seers predict a less-prominent position for the industry big guys, don’t expect more agile players to whittle them down to size very quickly, say our panelists.

“Microsoft has already defied the odds once by staying a dominant player as the computer industry made a major technological transition in the late 1990s from the PC era to the Internet era,” says Thomas Malone, a professor at MIT’s Sloan School of Management. “It’s not impossible for Microsoft to do this again, with whatever the next major technology turns out to be, but I’d have to say the odds are against it.”

But panelists don’t agree on just what Microsoft’s biggest challenge is. For IT consultant Paul A. Strassmann, the company’s business model just isn’t suited to the 21st century. “Microsoft enjoys astronomic profit margins selling software wherein the customer ends up spending a large multiple of the purchase price and incurs all of the risks,” he says. “Google, because of their architecture, can introduce innovations much faster than Microsoft, which is now hobbled with a huge accumu-lation of hard-to-upgrade code.”

IT futurist Thornton May agrees, saying the Microsoft economic model is outdated. “Microsoft is running out of rich, dumb customers,” he says. “If you are technologically smart, you can replicate 80% of the functionality of Microsoft Office essentially for free.”

The company has two monkeys on its back, says Don Tapscott, an author and president of New Paradigm Learning Corp. The first is the high expectations of shareholders. “A company of Microsoft’s size has to continue to dominate new multibillion-dollar markets just to meet these expectations, so just finding new areas for growth will be a major challenge,” he says. “The second challenge comes from networked/pervasive computing. The desktop and operating system are no longer the center of the electronic universe.”

And David Moschella, research director for CSC, sees Microsoft enemies everywhere. “The combination of open-source software, ASP services such as Google, an increasingly hardware- and operating-system-neutral Internet and the emerging global economy all work against Microsoft’s once over whelming dominance,” he says. “Linux has effectively ended the threat of a server monopoly, and Microsoft’s share in new consumer device- and Internet-based services markets is not strong. And emerging economies such as China and India are not inclined to make themselves part of the Microsoft empire.”

Microsoft’s strength has been a good thing until now because it established de facto standards, just like the IBM PC before it, says Michael H. Hugos, CIO at Network Services Co. “But like IBM, Microsoft will gradually see its market share eaten away by less- expensive, less-complicated, more- responsive alternatives that use the Microsoft standards in areas like the user interface, program APIs and so on.”

Having fended off government attempts to break it up, Microsoft now ought to break itself up voluntarily, says Hugos. “The present Microsoft culture is unable to move beyond the mind-set that they acquired during their heyday in the 1990s. If it remains in its present mind-set, Microsoft will wind up on the defensive everywhere, as in, ‘Windows is cheaper to run than Linux,’ ‘We can do search too just like Google,’ ‘We can make PDAs and iPods just as well as the next guy,’ and so on.”

Microsoft’s enormous momentum can still carry it far, Moschella says. “Don’t feel too sorry for Microsoft; its position in its core markets and vast cash resources should guarantee healthy financial results for many years to come,” he says.

And, IDC analyst Frank Gens points out, “a lot of people have lost a lot of money shorting Microsoft over the past 20 years. They are almost religiously bound to a single-stack philosophy and product line. That has limited their degrees of freedom, by their own choice. But [Microsoft is] also one of the smartest companies out there.”

When the time is right for Microsoft to move to a new business model, it will do it, Gens predicts.

Elsewhere on the Vendor Front ...

Microsoft isn’t the only giant surrounded by threatening Lilliputians, the panelists say. “There already is a mature market of ’90s-style ERP systems dominated by companies like SAP, Oracle and a few others,” Hugos says. “But ... those companies are not serving growth markets. The growth markets belong to those furry little mammals that are scurrying around eating the dinosaurs’ eggs while the dinosaurs are out fighting with each other.”

Andre V. Mendes says he’s not ready to write off the big vendors. “These people are very, very bright, and they understand the endemic nature of change,” says Mendes, a vice president at Public Broadcasting Service. “They have the ability, by virtue of their cash flow, to fund R&D that allows them to stay on top.”

The IT vendors that prosper in coming years will be those that can keep moving into noncommodity markets, says Mendes. “Commoditization of IT will move higher and higher up the hardware/software/ application stack, forcing companies like Microsoft to focus higher and higher on the stack as well,” he says.

That move up the stack will be good for users, says Gens. “Both enterprise customers and vendors are realizing that if everything is presented as just a bunch of piece parts, and we depend on the integrators to make sense of it and turn it into business value, it just slows things down. So we’ll raise the level of where we are integrating above the low-level, arcane technologies to some good, stable, high- performance platforms. Vendors will create a much wider variety of deep, verticalized applications.” Standard development platforms like .Net, J2EE and Web services will make it affordable for vendors to do that. “All the underpinnings that an application developer would have to create themselves, they can just assume it’s there,” Gens says. “So customers will see a packaged application market, but it will be a much richer one.”

Moschella sees an even more profound change in the vendor landscape. “As IT spreads into ever-more-specific business products and services, it will become increasingly difficult to say who is an IT vendor and who isn’t,” he says. “Consider Wal-Mart in RFID, Starbucks in wireless, Amazon in Web services. One can argue that the number of IT companies will actually start to expand rapidly, since these days, almost every company is an IT company to some extent.”