Within the next month, the software giant will likely disclose its efforts to make small office and home networks easier to create and use.

Craig Mundie, Microsoft's senior vice president of consumer strategy, is scheduled to talk about home networking and intelligent appliances at the Consumer Electronics Show in Las Vegas on January 7. He also will discuss "universal plug and play," which lets users plug in such peripherals as printers without manually reconfiguring the system.

Also in January, Sun is expected to announce the first product using its Jini technology, which allows digital devices such as digital cameras to connect easily to computer networks.

Until now, the complexity and cost of networks have thwarted their development among small businesses and consumers wishing to link digital appliances ranging from refrigerators to toasters with imbedded chips.

"Transparent networking has the potential to change computing dramatically," , according to Gartner Group analyst David Smith.. "There's a lot more here than meets the eye.

Microsoft has been looking into ways to make computer networks automatically reconfigure themselves since 1996. In a project called Millennium, engineers are studying an advanced operating system that would lower costs by carrying more of the networking burden itself and lessening the work involved in adding applications to the system.

But Millenium is not Microsoft's answer to Jini, company spokeswoman Sally Julien said, declining to comment further.

"They'll have to respond quickly," said Tim Bajarin, an analyst at Creative Strategies. Microsoft and Sun will get into a software tit-for-tat where each company comes out with an updated version to counter the rival's offering, he predicted.

Palo Alto, Caifornia-based Sun, which makes software and hardware for computer networks, announced Jini in July as a platform to make networks work more easily. Jini is written in Sun's Java computer language, so it will work with devices running on programs written in different languages.

Sun executives weren't available to comment.

Microsoft sees simplified networking as a way of pushing the range of its software, from the consumer-oriented Windows CE to Windows 2000, intended for corporate use. "When Microsoft looks at this, they want this pervasive technology," said Craig Roth, an analyst at Meta Group.

The home market may prove more attractive than the corporate market, analysts said. "The real battle is the consumer market," Bajarin observed. "Everyone in the office has one PC; in home networking, there are 18 devices."