(FORTUNE Magazine) – There are a few things you can say with confidence about the CEO of a typical big American company--he's rich, white, and Republican, for instance. Now you can add another: Increasingly, he's afraid of Microsoft. Ask BankAmerica CEO David Coulter, and he replies, "Yeah. They are a giant competitor. They like to say they're just a software company, but that's blank blank." (Read: b.s.) Walt Disney CEO Michael Eisner last year said that "the common wisdom is that the person to worry about the most right now is [Microsoft CEO Bill] Gates.... I think we've got to be careful." In November, News Corp. CEO Rupert Murdoch said: "Everybody in the communications business is paranoid of Microsoft, including me."

Fear of Microsoft has long been a fact of life in the computer industry. The Department of Justice lawsuit alleging that Microsoft has abused its near monopoly by bundling its Internet Explorer Web browser with Windows is largely a response to the protests of competitors like Sun and Netscape, whose leaders worry that there's no other way to stop the juggernaut. Says Eric Benhamou, CEO of networking equipment company 3Com: "Anyone who doesn't fear Microsoft is a fool." Now that same thought applies to a variety of other major industries.

Four in particular find reason to fear. In the past two years Microsoft has launched aggressive, Internet-based businesses that threaten the status quo in automobile retailing, newspapers, and travel. Next up: banking. The initiatives were hatched by the company's Interactive Media Group, led by longtime Gates lieutenant Pete Higgins. His potential world-beaters include Carpoint, a Website where you can research new and used autos, compare prices, and arrange to buy the car of your choice; the Sidewalk Webguides to American cities, which along with Carpoint and an upcoming real estate site called Home Advisor may steal classified advertising from newspapers; Expedia, a booming online travel agency; Microsoft Investor, a Website that helps consumers manage their finances; and MSFDC, a fifty-fifty joint venture with First Data Corp., the country's largest processor of credit card transactions, which, when launched late this year, will allow many people to pay their bills online.

Last year Higgins' combined software operations brought in just over $500 million in revenues. That's less than 4% of Microsoft's total sales, which will top $13 billion this fiscal year. But Higgins' aim is to build a "multibillion-dollar business."

Watching Microsoft encroach on your industry is like seeing an elephant head for your rose garden. Putting it another way, Bob Ingle, president of new media for Knight-Ridder, says: "They may screw up, but they're like Godzilla. They keep coming." Just consider: Microsoft is led by the richest man in the world, a fierce, tireless competitor who hires people with the same qualities. The company has $10 billion in cash--more than three times Knight-Ridder's annual revenues. This year it will spend $2.6 billion on R&D, a figure it plans to double. Microsoft supplies operating systems and applications to just about every major company on earth, and Gates has proven time and again that he is willing to use his near monopoly as leverage to enter new businesses.

This isn't megalomania; it's just business. Gates can't afford to let Microsoft stop growing, even if a few customers' flower beds get trampled. Its phenomenally talented staff is compensated largely by means of stock options. If Microsoft's historic growth of 25%-plus per year slows and the stock's steep climb halts, many of those people may no longer find it worthwhile to devote most of their waking hours to the company. The core operating-systems and applications businesses probably can't grow fast enough to justify a stock price that was recently $89 a share, about 50 times this year's estimated earnings. To sustain that P/E, Microsoft needs new businesses.

To be fair, some of the current fear of Gates is nothing more than worried executives putting a face on their fear of the Internet. The Net is radically changing relationships between producers and their customers, and it's easier to envision a threat from big bad Microsoft and the J.D. Rockefeller of the Digital Age than from a startup in somebody's garage. Argues Jim Moore, who runs tech consulting firm GeoPartners Research in Cambridge, Mass.: "What people really ought to feel threatened by is that their business is being transformed out from under them--not by Bill Gates, but by a worldwide knowledge revolution enabled by information technology."

Fine. But other observers think it's obvious that Microsoft would like nothing better than to become the toll collector of the Internet. If its new businesses take off as planned, Microsoft would someday derive a healthy portion of its revenues from transactions. Then, each time you make a travel reservation via Expedia, Microsoft would get a cut of the action. Every time you receive or pay a bill via MSFDC, Microsoft would get a share.

Microsoft has a consumer-friendly term to describe its strategy. Higgins says his group is just trying to develop "products for a Web lifestyle." He goes on to say he doesn't anticipate developing lots of businesses beyond the existing list. But if bill paying qualifies as a "lifestyle" business, what doesn't? Higgins admits that in the long run, his group hopes to market Microsoft software as the underlying architecture that puts entire industries online. Says Howard Anderson, president of the Yankee Group, a Boston research firm: "Gates is interested in electronic products, electronically delivered. All of them."

To get an idea of how Microsoft and the Internet are changing an established industry, point your Internet browser to www.carpoint.com. You'll see an attractive screen with options for learning about new and used cars from different manufacturers, listings of used cars for sale, and a way to solicit a bid electronically from a new-car dealer near your house. (Dealers pay Microsoft about $1,600 monthly to list their inventory on Carpoint.) To really experience what makes Net shopping different, select any two cars and let Carpoint compare their key characteristics in an easy-to-read table. You'll quickly learn, for example, that a Mercedes-Benz SLK has more front legroom than a BMW Z3. Try getting your local BMW dealer to volunteer that information. This is one reason a recent J.D. Power survey found that almost half of U.S. car dealers consider the Internet a threat to their survival.

Of all U.S. auto manufacturers, General Motors seems to be paying the most attention to Microsoft. In October, GM launched a Website that enables customers to purchase its vehicles using the Net. Called GM Buypower (www.gmbuypower.com), the pilot program works with dealers in four Western states. While it lets you buy only GM cars, Buypower invites you to compare specs on GM vehicles with those of competitors. Why the openness? Because of the need to keep up with Carpoint and other such Websites. Ann Noel Pattyn, GM's top Nethead, says the auto giant will surrender nothing to Microsoft: "With all deference to Mr. Gates, I don't think it is advantageous for one entity to get exclusive ownership of the World Wide Web."

Pattyn won't admit to being afraid of Gates. But she does say, "Microsoft has expanded far beyond a software company. Our read is that they intend to be very serious players in this category, as in almost every category of retailing." Sources close to GM say top brass fret that Microsoft wants to wedge itself between the GM dealer and the customer. "They worry that they are no longer the single most important information source about their own vehicles," reports a company adviser. Such fear hasn't deterred GM from also consorting with the enemy--it is one of the biggest advertisers on Carpoint.

Once upon a time, such ads would have found their way into a magazine or newspaper. That's a reason Microsoft worries executives of the nation's top papers: Microsoft is assembling a network of Websites that can steal classified ads. The hub of its effort is Sidewalk, a series of Websites that feature information on specific cities. (Ten are up and running now, with a total of 50 scheduled by the end of this year. You can see whether your city is covered at www.sidewalk.com.) Sidewalk will link to Carpoint, with its car listings; to Home Advisor, which is scheduled to go up on the Web this summer with real estate listings from around the country; and to other Microsoft Websites that haven't yet been announced.

Therein lies the threat. U.S. consumers and businesses spent $17 billion placing classified ads in newspapers and magazines last year. Such ads account for 30% to 40% of the typical newspaper's revenue; remove them, and the paper is in the red. Says Knight-Ridder's Ingle: "The areas Microsoft is choosing to go into are in direct competition with our revenue stream."

Ingle has watched Microsoft creep ever closer to the newspaper business, even as executives claimed the company wasn't interested in hiring reporters or offering classifieds--both of which it does today. "Microsoft has a long history of telling the big lie," he says. "They say, 'We're not going to do this! We're not going to do this!' up until the point when the whole world knows they're doing it." Referring to the three main classified-ad categories, he adds: "They've got cars, and they're going into real estate. They say, 'We're not going to do help-wanted advertising.' If you believe that, I've got a bridge to sell you." Microsoft's Higgins insists, "The goal was not to try to look at newspaper revenue streams and try to match those." Hogwash, replies Ingle. He produces for FORTUNE an April 1997 Microsoft ad in Automotive News offering to put a dealer's used-car inventory on Carpoint for six months "for less than you'd spend on one ad in your local newspaper."

Newspapers are retaliating by going online themselves. Last November the Columbia Journalism Review published a cover story entitled "Will Gates Crush Newspapers?" "It's the right question," says David Hiller, senior vice president for development at Tribune Co. in Chicago, the $2.7-billion-a-year owner of four large newspapers. "But the answer is no. Newspapers have all the resources they need to be successful." Tribune is perhaps the most Net-savvy newspaper company. It owns 1.5% of AOL and has many other successful new-media investments. It also helped found a nascent effort by a group of newspaper companies--including Times Mirror and the Washington Post Co.--to offer classifieds on Websites, in a partnership called Classified Ventures. Knight-Ridder has 33 local-information Websites tied to its newspapers as well.

So far, says Ingle, the papers are holding their own. He cites a survey his company commissioned in February: It reported that during the previous six months, 34.7% of people in Knight-Ridder cities who were shopping for cars said they used either its print or online products, while just 1.8% said they used Carpoint. Says Ingle: "We're struggling for all we're worth to use the advantage we have, which is print newspapers. I'd rather own the PC operating system, but that's not what I've got."

The airline industry, on the other hand, has had an operating system of sorts for years--huge computer reservation systems (CRS), like the one run by AMR's $1.7-billion-a-year SABRE Group, that enable travel agents to look up routes and compare fares. The airlines also have experience with what happens when one company controls a chokepoint in that system. Until the government issued new rules in 1984, the airlines that owned the major reservation systems gave favorable placement to their own flights on the first screen seen by travel agents. Not surprisingly, those were the flights that got booked most often.

Now, seeing Microsoft swoop in, the CRS providers are acting as if they're about to have their wings clipped. Michael Durham, CEO of SABRE, says that his firm's Web travel agency, Travelocity, is at an unfair disadvantage because Microsoft gives Expedia favorable placement in its Internet Explorer Web browser. Says Durham: "If you click on the travel button in IE 4.0, the first page gets you to Expedia." Though Travelocity pays Microsoft for favorable positioning, it's stuck four screens further away.

It doesn't take long to see that this is more than just a quarrel between Websites. SABRE accounted for 20% of the profits of AMR Corp., the parent of American Airlines. Not only is AMR ($18.5 billion in 1997 sales) bigger than Microsoft, but it also has a long history of lobbying on Capitol Hill. Says Durham: "Because of the potential for Microsoft and others to develop dominant positions on the Internet, we're focused on ensuring that it doesn't happen. We talk to folks in industry and in Washington to ensure they understand what's going on."

While AMR plays rough, other big dogs are rolling over. Microsoft is attacking this industry on two levels, providing reservation services for consumers and reservations software for travel providers. Currently, airlines pay a fee of $9 or so to reservation systems companies each time a reservation is made. That gives Microsoft an opening to come in with a service that charges less. Already, Northwest Airlines, Continental Airlines, and American Express license the Microsoft travel software that underlies Expedia to run their Websites. The deals give Microsoft a cut of all reservations made on those sites.

Ultimately Microsoft may have to choose between serving consumers and serving major businesses that deal with consumers. Ken Orton, CEO of Preview Travel, another big online travel site, says he won't buy Microsoft's travel software as long as the company owns his competitor, Expedia. But he and others think Microsoft may dump Expedia. Says Gene DeRose, CEO of New York research firm Jupiter Communications: "They'd probably fold Expedia if they risked losing the chance to become the providers of underlying software to all travel reservations systems and Internet travel Websites." That market may prove irresistible to Gates. Rich Barton, general manager of Microsoft's travel business unit, says that while it's unlikely his company will dump Expedia, it's possible. If Microsoft does that and as a result persuades lots and lots of travel providers to use its Internet software, SABRE's dominance of the reservations business could be diminished.

Sabre CEO Durham says he's aware of the risk. It's too early to tell who will win the race, but SABRE is not standing still. The company sells its own Web-based software (the stuff that runs Travelocity) and has won some major accounts, like Japan Airlines. Durham says he wants to ensure that "there isn't a single Website version for the travel industry."

For a sense of how Microsoft is itching to get a steady stream of transaction-based revenues, the best place to look is the finance industry. In the summer of 1994, Bill Gates used the word "dinosaur" while discussing banking with a group of Microsoft employees. Unfortunately for him, a reporter wrote that he had called banks dinosaurs. Today, Microsoft executives insist he was speaking not of banks themselves but of their aging mainframes. No matter. The comment has circulated endlessly among bankers: Last fall a survey by Forrester Research in Cambridge found that managers at 44% of large financial institutions considered Microsoft a direct competitor.

As it's doing in the travel industry, Microsoft is marketing software to run financial Websites, in this case selling the program that underlies its own Microsoft Investor site (www.investor.com). But the software that may have the biggest impact on banks is a product the company is just rolling out, clunkily named MSFDC.

It is part of a joint venture with First Data, a $5.2-billion-a-year payment processor in Hackensack, N.J., and is designed to help people receive and pay all kinds of bills--from utilities, credit card companies, retail catalogs--over the Web. Says Microsoft's Darren Remington: "Bill paying is ubiquitous, like E-mail, so we thought it was pretty important as part of our Web-lifestyle initiatives." (There's that "lifestyle" word again.) Remington says Microsoft thinks MSFDC can be the "switch" that moves data among consumers, banks, and billers. When MSFDC launches, Remington says, it will enable a typical consumer to pay his or her monthly bills in just ten minutes. You'll log on to MSFDC, or to a bank's site equipped with MSFDC software, view your bills onscreen, and click on a button to pay. The money will be deducted directly from your bank account. In theory, the process should be far more efficient than the monthly ritual of sorting through dozens of paper bills, writing out checks, and mailing out envelopes.

The evolution of MSFDC is a case study of why Microsoft generates fear as it enters new industries. It started the project seemingly oblivious to the concerns of both bankers and billers. In the original plan, MSFDC intended to display its own brand to consumers, thus diluting the banks' own brands. MSFDC was also vague about how it would use information about consumers visiting the Website, the kind of proprietary spending data that are invaluable to big billers like utilities and retailers.

Now, however, says Leo D'Acierno, a Booz Allen partner who specializes in financial technology, "Microsoft is making a concerted effort to look more like a partner." When MSFDC starts up, participating banks will get a cut for guaranteeing payment of bills, and they can turn off the MSFDC logo if they so choose. Also, MSFDC has promised not to use consumer data to market other products without the billers' permission. That hasn't assuaged AT&T, for one. Consumer marketing exec Jaimie Kiefer says the nation's largest biller will not put its full billing data anywhere but on its own computers. Needless to say, no deal is pending between MSFDC and AT&T.

Microsoft says its insensitivity to banks was a result of being new to the billing business, and that its manners improved as it learned. Bankers, however, saw the original plan as a wake-up call. Catherine Allen, a former Citibank executive who now runs the Banking Industry Technology Secretariat (BITS), a group whose board includes chairmen of 11 of the largest U.S. banks, says bankers view Microsoft with alarm. According to Cliff Condon, a senior analyst at Forrester Research: "Banks are worried that MSFDC may set itself up as a toll road between banks and their customers, and that it could disintermediate them entirely by setting up an alternative to banks for paying your bills." To help prevent that from happening, a group of 17 banks has worked with IBM and Visa USA to develop an online billing system called Integrion Financial Network. But no one dares shut out Microsoft completely: According to Higgins, MSFDC is in active discussions with every major bank in the country. Already signed on: Wells Fargo and Banc One.

The stakes are particularly high for BankAmerica. As the country's largest processor of checks, it doesn't want to lose any of that profitable business to MSFDC. Says Michael DeVico, executive vice president of the bank's interactive division: "If MSFDC positions themselves as an aggressive supporter of banks, we'll be happy. But we don't believe that we're toast." CEO David Coulter, too, thinks BankAmerica can compete with Microsoft, but "it's going to take some crucial moves." BankAmerica is taking an active role in Integrion and recently teamed up with TCI, Intuit, and @Home Network to offer a range of financial services, including bill delivery and payment, via cable modem to the TV. But even Bank-America is playing both sides of this game: Another executive at the San Francisco-based bank is on the advisory board of MSFDC.

To partner or not to partner--that is the question a lot of companies now face. Do you try to beat Microsoft, or do you try to harness its technological expertise to your advantage? BankAmerica competitor Wells Fargo has chosen to work with Microsoft and MSFDC. Says Dudley Nigg, the Wells Fargo executive vice president who supervises its electronic efforts: "Microsoft has acted as a stimulant to our industry to move more quickly than we would have without their involvement. They've had a galvanizing effect, both because of what they're doing and out of fear of what they're doing." The Forrester study that found that 44% of financial institutions considered Microsoft a direct competitor also found that 80% were willing to partner with the company. Last summer Forrester found the same was true of media companies: 90% considered Microsoft a threat, but 90% said they might work with it.

Some companies that cooperate with Microsoft are delighted with the results. Says Al Lenza, who runs the Website that Northwest Airlines built using Microsoft software: "It's been very positive so far. Microsoft brought skills that helped us get to market sooner." He says the deal keeps Northwest on the cutting edge. For example, when Expedia developed a sophisticated program for viewing airline seat assignments online, Northwest got it immediately.

But even Nigg concedes that partnership has its risks. It's possible, he says, that "by slow degrees Microsoft enters more and more the lucrative part of the banking industry, and banks find themselves with a less and less profitable piece of the pie."

Pete Ellis, CEO of Auto-by-Tel, whose Website competes with Carpoint, thinks big companies that ally with Microsoft are in for a rude surprise. For a year and a half, Carpoint used Ellis' technology. But he pulled out of the three-year contract last summer. Ellis feels Microsoft was "doing reconnaissance on our program." He adds: "Microsoft is not a typical partner. Their intentions are always suspect." Ellis recalls that John Neilson, a top Higgins deputy now on leave from Microsoft, sat in his office saying Bill Gates wanted to know how he could get $100 for each car sold. "Microsoft will stifle competition--stifle it--as time goes on," Ellis says. "We'll wake up in 15 years and find that everything we do is owned by Microsoft."

Higgins calls such claims "hyperbole to the max." Like other Microsoft executives, he pooh-poohs the talk--much of it emboldened by the Justice suit--that Microsoft's control of the PC operating system gives it an inherent, and unfair, advantage in any industry it attacks. So far the Justice suit is limited to the way Microsoft markets its browser. But Higgins has to be concerned that the likes of Ingle and Coulter will draw the government's attention to Microsoft's new initiatives. In two long conversations in his offices at Microsoft's "Red West" multimedia campus in Redmond, Wash., Higgins worked to portray the company's efforts as reasonable, almost modest. He marvels at the fears directed Microsoft's way: "We cast a much larger shadow than we deserve. Our potential for headlines is probably greater than our potential in the marketplace." Higgins says the company is highly selective about the "Web lifestyle" businesses it enters. Its specialty, he says, will be "everyday, productivity-oriented services that will be the backbone of the Internet experience, services where software makes a real difference."

Higgins is especially sensitive to the fears of banks, because they are Microsoft's biggest customers, accounting for more than $1 billion in annual sales, mostly for operating systems and PC applications. "Microsoft will never become a bank in any way," he says. "Banks are some of the most important partners and customers of this company. Please quote me."

Still, as much as Microsoft soft-pedals its ambitions, they are too strong (and too healthy) to hide. In a recent interview, Expedia boss Rich Barton tells FORTUNE: "It's way too grand to say we want to provide the entire industry's technology." In his very next sentence, however, he allows, "What we want to do is enable the next generation of travel technology with tools we provide."

Whatever warnings such contradictions may spark, Microsoft's products are too crucial for leaders of other industries to give Gates the cold shoulder. CEOs regularly make the pilgrimage to Redmond to check in with Bill. A group of banking leaders went in February. Tribune Co. recently sent a delegation of top managers. Microsoft hosts industry-specific conferences to share its technology road map and to promote products. In March, 7,000 customers converged in Florida for a health-care summit. In mid-April the company will host its third annual Internet banking and brokerage conference.

In truth, Microsoft executives sometimes feel themselves as much in the dark about where all this is going as do their self-described adversaries. Chief operating officer Bob Herbold compares the growth of the Internet to the early days of radio and TV. "We don't know what that means for us, to be honest," he says. "We have all kinds of things--we call them products--but it's very, very early in the life of these things. You can't tell if we're going into new industries because it isn't clear where all of this will end up." Herbold falls back on the argument that many people find it easy to blame Microsoft for challenges that really come from the Internet. "Technology today suggests the feasibility of massive change. And change is not an easy thing for human beings. Change agents are not necessarily always your favorite person."

There is another change agent stirring fear these days. A surprising number of executives worry about America Online, which serves as the portal to the Web for 11 million consumers. Durham at SABRE says that when he's talked to government officials about Microsoft, he's also raised concerns about AOL. DeVico at BankAmerica and Ingle at Knight-Ridder also admit to worrying about the service.

Still, for now, no threat seems quite as imposing as Microsoft's. True, there's no law against doing well, and there is little evidence that Microsoft's behavior, scary though it may sometimes seem, should be considered illegal. Says Anderson of the Yankee Group: "The only thing Bill has monopolized is brainpower, and as I read the law, there are no restrictions on that." Companies that see Microsoft approaching their business can't wait for Washington to intervene. They have to ready themselves for battle against a new kind of foe. BankAmerica CEO Coulter says, "I have to ask myself--how does my team compare to Microsoft?" So how does it compare? Coulter's response: "I've got to keep investing in my team."