Penguin causes sleepless nights in Seattle
Microsoft is beginning to worry about the competitive threat posed by Linux. No wonder, says Sara Yirrell.
Although Microsoft has been described as an 800lb gorilla, it is certainly feeling slightly, if not significantly, threatened by a 20lb penguin, as the company's chief executive Steve Ballmer admitted to partners at a special briefing last month.
Microsoft's XML-based .Net web services strategy is on the brink of a boom, and new Windows and Office products based on .Net are in the pipeline for next year.
But Linux, the operating system (OS) developed from Unix, is gaining ground. This is starting to cause the odd sleepless night in Seattle.
"Our number one competitive threat is free software ... It's Linux," said Ballmer at the London event. He also stressed Microsoft's commitment to the channel and spoke about the importance of driving business to the SME sector through partners.
However, Linux was still high on the list of talking points of the day. With a fully interoperable Linux-based desktop OS only 12 months away, and a Sun Microsystems open source desktop due for testing in November, Microsoft certainly has its work cut out.
Although many of the distributed Linux products are not really free, most of them are cheaper than Microsoft software. Competition from the likes of IBM, with its WebSphere web services strategy, also adds to Microsoft's woes.
"Linux is a small phenomenon in the grand scheme of things, but we know that it is easier to compete with things when they are small and not allow them to become a tidal wave," said Ballmer.
He admitted that Microsoft is losing out to Linux in high-end cluster systems, but said that it will "get on top of these things" because Linux is just "a memory manager and a file system, with its own huge wave of problems and challenges".
Although Ballmer maintained that Microsoft would be looking at sharing more technology with its business partners, he ruled out the firm ever releasing its own versions of open source software. "We will not be able to match free software," he said.
"In every competition [Microsoft] has been in, we have always tried to be cheaper and better than the other guys, but with Linux we have to accept the fact that we are not cheaper."
Open source boom
According to research by IDC, spending on Linux operating environments will increase from $80m in 2001 to $280m in 2006.
The analyst pointed out that, despite the "unconventional way" Linux is bought and sold, it has become a mainstream choice for many infrastructure workloads because the software is available either freely on the network or as a low-cost packaged product that can be deployed on high-volume systems.
Releases from Linux distributors such as SuSE, Red Hat and the UnitedLinux consortium are serving to keep Microsoft on its toes.
Mark de Visser, vice president of worldwide marketing at Red Hat, which has recently released its Linux 8.0 software for SMEs, said: "Linux is the first competitor Microsoft doesn't know how to handle because it can't compete with free software. We have Microsoft's attention right now, but that can sometimes be a mixed bag."
Red Hat is working hard to establish Linux as an alternative to Microsoft. It recently partnered with IBM to distribute its Advanced Server software to the business community, and works closely with other vendors such as Veritas, Oracle, Hewlett Packard (HP) and Dell.
De Visser explained that there is huge interest in an alternative desktop to Microsoft, but that Linux is not yet ready to provide this. A great deal of work needs to be done to ensure that hardware devices are compatible with a Linux desktop.
"Windows is a sitting duck and the chasm between it and competing products is getting smaller," he said.
However, Red Hat's main target is Sun. The firm believes that, once that obstacle has been overcome, the path to Microsoft will be easier. "The road to Redmond goes through Mountview," de Visser said.
Bright future
Darl McBride, new chief executive of SCO Group (formerly Caldera), is also optimistic about Linux's future.
Along with SuSE, Turbolinux, and Conectiva, SCO is part of the UnitedLinux consortium, which is aiming to steal market share from Red Hat. The consortium released the first public preview of its joint offering at the end of last month.
"In a world where Linux was free it was hard for resellers to embrace the concept of making margin, but with UnitedLinux resellers have the opportunity to go to market with a different offering," said McBride. He added that SCO was "bullish" about its ability to take Linux to market.
As well as being a member of UnitedLinux, SCO is also pushing its own Linux-based offering, and claims a good take-up of its OpenServer product which competes against similar Microsoft products in the SME space.
"Over the last 20 years, Microsoft has made a living out of pulverising other companies with a free strategy, but what goes around comes around and this seems to be happening for Microsoft," said McBride.
"However, at the end of the day this is still Microsoft. Although we have its attention, which is good at one level, at another it is like waking a sleeping giant."
McBride added that there is always a high demand for an alternative server market, which is where SCO is concentrating.
Alex Tatham, vice president of global software distribution at Ideal, the UK arm of Bell Microproducts, agreed that Linux has had an impact on Microsoft, but said that the company's .Net strategy will ensure continuing success in the channel.
"We are seeing plenty of paranoid evidence that [Microsoft] wants to make sure Linux doesn't get off the ground. This is about [Microsoft] keeping an eye on Linux and making sure its software is better. If that helps to improve Microsoft software even further, then Linux will have done the world a favour," Tatham said.
He added that resellers should think about getting behind XML now, as connectivity is critical to the success of .Net and the future. "There is a great opportunity for resellers to make money by getting behind services," he said.
David Reynolds, business development manager at reseller Star Computers, suggested that the problem goes beyond free software. "As far as the channel is concerned, the issue is not that Linux is free. Nor do we expect Microsoft to provide free software," he said.
"Most resellers will buy a Linux distribution; they are not given it. It is possibly easier to include value-added services around a lower-cost platform than a higher-cost proposition. It is in services that resellers make their money, not the margin on the product.
"There has been no major release of Linux for a couple of years, which may be seen as a good thing. Just because something is new does not necessarily mean it is better. Perhaps it does what it is supposed to do in the first place and represents good value for money."
Besides worrying about Linux, Reynolds said, Microsoft needs to understand the SME market, and to convince SMEs to implement current technology to avoid a great divide between them and corporates.
New challengers
Clive Longbottom, service director at analyst Quocirca, indicated that Microsoft is right to worry about Linux, but that the Linux market needs its own new challengers.
"Microsoft used to be able to ride the Linux wave because the decentralised, uncontrolled chaos of Linux meant it was unlikely that anything serious would be done using it," he said.
"Now that Linux is getting its act together, and we have Red Hat as the major player and UnitedLinux as the hanger-on, Linux is being taken very seriously by hardware vendors such as IBM, HP, Sun and Dell, and by software vendors such as Oracle and SAP.
"As a charged-for, supported OS from reputable vendors, it gives Microsoft something to begin to worry about. And we are looking at Linux versions costing £600 per server licence, which is comparable to Microsoft.
"It will still be the big players that get rich. Now we need a competitor to Linux to try to attack the bourgeois capitalist mentality of Red Hat and UnitedLinux."