(continued from previous page)

26. Only a few firms currently market network computer systems, and the systems have yet to attract substantial consumer demand. In part, this is because PC systems, which can store and process data locally as well as communicate with a server, have decreased so much in price as to call into question the value proposition of buying a network computer system. This fact would not change if the price of an Intel?compatible PC operating system rose significantly, because the resulting change in the price of an Intel?compatible PC system would be very minor. Another reason for the limited demand for network computer systems is the fact that few consumers are in a position to turn from PC systems to network computer systems without making substantial sacrifices; for the network computing option exhibits significant shortcomings for current PC owners and first?time buyers alike. The problems of latency, congestion, asynchrony, and insecurity across a communications network, and contention for limited processing and memory resources at the remote server, can all result in a substantial derogation of computing performance. Moreover, the owner of a network computer is required to enter into long?term dependency upon the owner of a remote server in order to obtain functionality that would reside within his control if he owned a PC system. If network computing becomes a viable alternative to PC?based computing, it will be because innovation by the proponents of the network computing model overcomes these problems, and it will happen even if Intel?compatible PC operating systems are priced at competitive levels. In any case, that day has not arrived, nor does it appear imminent.

5. Server?Based Computing Generally

27. As the bandwidth available to the average user increases, ``portal'''' Web sites, which aggregate Web content and provide services such as search engines, E?mail, and travel reservation systems, could begin to host full lines of the server?based, personal?productivity applications that have begun to appear in small numbers on the Web. If so, increasing numbers of computer users equipped with Web browsers and IAP connections could begin to conduct a significant portion of their computing through these portals. To the extent they might do so, users probably would not regard the Mac OS''s limited stock of compatible applications as the major drawback to using an Apple PC system that it is today, and they might be increasingly drawn to network computer systems and information appliances. The variety and ease of use of server?based applications accessible through browsers would have to increase a great deal from today''s levels, however, before the total costs of dispensing with an Intel?compatible PC operating system would decline sufficiently to impose a significant constraint on the pricing of those systems. Again, that day is not imminent; for at least the next few years, the overwhelming majority of consumers accessing server?based applications will do so using an Intel?compatible PC system and a browser.

6. Middleware

28. Operating systems are not the only software programs that expose APIs to application developers. The Netscape Web browser and Sun Microsystems, Inc.''s Java class libraries are examples of non?operating system software that do likewise. Such software is often called ``middleware'''' because it relies on the interfaces provided by the underlying operating system while simultaneously exposing its own APIs to developers. Currently no middleware product exposes enough APIs to allow independent software vendors (``ISVs'''') profitably to write full?featured personal productivity applications that rely solely on those APIs.

29. Even if middleware deployed enough APIs to support full?featured applications, it would not function on a computer without an operating system to perform tasks such as managing hardware resources and controlling peripheral devices. But to the extent the array of applications relying solely on middleware comes to satisfy all of a user''s needs, the user will not care whether there exists a large number of other applications that are directly compatible with the underlying operating system. Thus, the growth of middleware?based applications could lower the costs to users of choosing a non?Intel?compatible PC operating system like the Mac