Something is gnawing at Microsoft.

By all accounts the Microsoft Corp. the first major company spawned by the personal computer to reach its 10th birthday, has a lot to celebrate. Clearly the company has prospered, with revenues leaping by more than 40 percent in its last fiscal year.

It has by far the broadest product line among software companies. And recently it signed a long term agreement with the International Business Machines Corp. that is seen as ceenting Microsoft's position at the center of the personal computer universe.

"They're just on top of the world right now, as far as I'm concerned," said David S Wagman, cochairmain of Softsel Computer Products, a leading distributor of software.

But what is spoiling the party is that the company was eclipsed last year as the largest personal computer software concern by the Lotus Development Corp, creator of the highly successful Lotus 1,2,3 spreadsheep program. Lotus's revenue's totalled 200 million for the 12 months ending June 30th. Microsoft's revenues came to 140 million in that same period.

While Lotus and Microsoft remain friendly rivals. Microsoft and its 29 year old chairman, William H. Gates, clearly want to be no 1 again. "It drives him up the wall" said one friend of Gates.

To catch up to Lotus, or even merely continue to grow, Mocrosoft must continue to expand beyond systems software, which governs the basic functions of the computer, to the far larget market of applications programs, such as word processors and spreadsheets, which guide the computer in particular tasks. Lotus sells only applications software.

Microsoft is now unleashing a barrage of programs, including Excel, a spreadsheet program for the Macintosh computer, and Access, a communications package for the IBM computer. It is also finally bringing Windows to market. That program, a key part of its strategy is more than a year behind schedule.

But selling software to consumers is different from selling highly technical operating systems directy to computer companies. To compete against sophisticated marketers like Lotus, Microsoft is also undergoing a corporate makeover, rying to shed it's "techie" image in favor of a flashier one. The corpoate image perhaps is a reflection of Gates himself, who is a technical genius but is much less outgoing than Mitchell D Kapor, Lotus chairman.

"We're taking a look at everything." said Jean Richardson former Apple official who now heads Microsoft's corporate communications. "A year from now you will see a very different image of Microsoft."

Going public next year is also part of the plan. Officials say that the need for money is not the primary reason for a public offering. The company has been consistently profitable and is believed to have moer than $15 million in chas on hand. But going public is expected to win increased attention and credibility.

Microsoft was founded in 1975 by Gates, then 19, and a friend Paul Allen, who is now less actively involved in the company. Gates who as a teenager developed a previous computer programming business dropped out of Harvard and wrote a verson of the BASIC computer language for one of the first personal computers.

Microsoft's big break came five years ago, when its MS-DOS which stands for Microsoft Disk Operating System was chosen by IBM for use on its personal computer. As IBM soared to prominence in the personal computer business, so did Microsoft. IN a relationship that one Microsoft official recently described as "fire years on a raft" There was always the risk that IBM would go its own way. But the agreement signed recently between IBM and Microsoft seems to remove this threat for the next few years at least.

Last year, MS-DOS accounted for 20 percent of Microsoft's revenues, while other systems software, mainly programming languages, totalled 30 percent.

It got a late start in the market for IBM computer applications software and faced entrenched, highly specialized competitors. The IBM computer version of Microsoft Word, the company's word processing software, trails programs by Multimate, Micropro International, and IBM itself, according to audits of computer stores IMS America a market research firm.

To improve its production process, Microsoft has changed its management. Gates, while still cheif executive and clear leader of the company, has no one reporting directly to him. That allows him to concentrate on the direction of the company while leaving day to day management to others, particularly the president and cheif operating officer, Jon Shirley, former had of Tandy Corp's personal computer merchandising.

Microsoft is still in search of a hit product. One contender coming this month is, Excel, a spreadsheet program for the Macintosh that gates expects will become Microsoft's best seller.

For the IBM world, Microsoft this fall is introducing Windows, a program that allows various applications to appear on the screen at once, each in its own "window" Microsoft hopes to make Windows a standard on all MS-DOS PC's.