Some 20,000 employees who gathered at Seattle's SafecoField baseball stadium were treated to a concert by rock band Cheap Trick, a routine by comedian Sinbad, and the spectacle of Chief Executive Steve Ballmer bursting out of a huge cake. But after the last of its stock-option millionaires hasleft the field and the guitars have fallen silent, some hard realities will still be hanging around.

The company that helped fuel the personal computer boom isnow working feverishly to assert its relevance in the Internet era, in which PCs are just one of many devices people will use to work and play. And it is fighting tooth and nail to convince the federalcourts that it is not a scofflaw monopoly and should be spared being broken in two as a judge ordered in June.

"Microsoft has always had challenges in the past but Idon'T think they've been challenged on as many fronts as they are right now," said Meta Group analyst Steve Kleynhans.

"A lot of things they've always been able to look at tobuoy employees up are just not there right now," Kleynhans said. "Today they can'T even look at the stock price." Microsoft's once-highflying stock, which turned thousandsof options-wielding employees into millionaires, has tumbled from a high of nearly $120 set in December to touch a year low of $60-3/8 amid concerns of slowing growth and its legal woes. The shares closed down 1/16 at $70-1/8 on the Nasdaq Tuesday.

Microsoft has faced plenty of challenges in its 25 years.

The company was born in 1975, in Albuquerque, New Mexico,where high-school chums Bill Gates and Paul Allen went to work on software for one of the first popular minicomputers, the Altair 8800.

Little more than fancy calculators that appealed only totechnology hobbyists, the machines gave only the slightest hint of the impending computing boom.

"Micro Soft", as the company name was then spelled, was runas a partnership between Gates and Allen, who eventually moved the business back to their native Pacific Northwest at the end of 1978, and incorporated it in 1981.

In its infancy, Microsoft wrote software for virtually anykind of minicomputer before finding its calling with IBM's PC. It moved from selling a simple language called BASIC to the DOS operating system called DOS, to Windows, the more sophisticated graphical software that underpins its business today.pRevenues, a mere $1 million in 1978, ballooned to nearly$100 million in 1984 and came within a whisker of $23 billion in its fiscal year just ended in July.

The company spent its adolescent years brashly staking outits turf, running circles around heavyweight IBM, fending off challenges from rivals like Apple Computer Corp., and, critics charge, bullying the smaller kids on the software playground.

It was one of those kids, Internet browser maker Netscape,that came back to haunt Microsoft when a federal judge earlier this year found that it illegally tried to crush Netscape.

MICROSOFT MATURES
Now as it enters adulthood, Microsoft seems to have tamedits youthful impulses.

With PCs now found in practically every nook and cranny inthe world, Microsoft is setting its sights on more moderate growth in those businesses and turning to new frontiers like interactive TV, video games and handheld gadgets.

Gates, who stepped down as Chief executive earlier thisyear to assume the title of Chief Software Architect, has announced a new ".NET" (pronounced "DOT-net") strategy to tie the company's software together and start selling it as a service instead of in standalone boxes.

"Any way you look at it it's a very definitive moment inMicrosoft's history," said Naveen Jain, Chief Executive of InfoSpace Inc. and a former Microsoft employee. "It is also a bigger paradigm shift that they are seeing today than ever in their lifetime."

At Tuesday's rally, Gates likened .NET to Microsoft's earlyyears, when the company struggled to convince PC makers and other software firms to support its products.

"We once again have to woo developers to our new platform,"Gates said.Many analysts say they are encouraged by the .NET talkcoming out of Microsoft's Redmond, Wash., headquarters, yet they caution that it is still too early to tell what products the strategy will yield, or if people will pay money for them.

"It's obviously the big bet. That's the big kahuna," ScottMcAdams, president of Seattle-based brokerage McAdams Wright Ragen, said of .NET.

Still, Gates, who in 1975 penned an infamous open letterdefending the controversial practice of charging money for software, said he stood by Microsoft's money-spinning model of high-volume, low-cost product. And he scoffed at predictions by industry analysts that PCs will soon take a back seat to smart cellphones, TVs and other devices.

"People are talking about limits to the PC today, and I saythey're wrong. We'll confound the experts who think that appliances will replace PCs," Gates said.

CUTTING DOWN ON "NERDINESS"
Just as important as pitching .NET to Wall Street investorsand Main Street consumers will be whether the company can get its own employees fired up, analysts say.

Tuesday's rally seemed to do just that.

Sinbad played to the gallery with jibes about Microsoftculture, promising to issue passes to let chronically overworked staff go home, and to teach employees to actually talk to each other instead of sending E-mails.

"We gotta cut down on the nerdiness ... so that you can fitin with other people in Seattle!" joked the comedian.

An appreciative crowd applauded Sinbad as he left, but thatwas nothing compared to how employees surged to their feet and cheered and clapped wildly when Gates took to the stage, to the tune of "Start Me Up" by the Rolling Stones.

Later, the crowd went wild when a giant birthday cake waswheeled out on stage only to have Ballmer - a burly man with a booming voice and talent for inspiring the team - burst out and run into the crowd, high-fiving enthused employees.

"They have to convince their employees right now that theyas a company are still relevant in a changing market. Unless they can convince their employees, they don'T have a chance of convincing the marketplace," Kleynhans said.

REUTERS