The Anti-Microsoft: Linux, Open Source, Google and Apple

The anti-Microsoft recipe is rather simple and with evident ingredients. And in its quarterly report filed with the U.S. Securities and Exchange Commission, the Redmond giant spelled out the main risks and competitors to its business: Linux, open source, Google and Apple. The software giant has made inroads on a variety of markets where it does not hold the monopoly as is the case with Windows platform and the Office system, and the diversification of its business past the pair of flagship products is equivalent with a catalyst of new competition. When it comes down to the risk factors taken into consideration by Microsoft, open source occupies the first position.

For Microsoft, the danger is in the proprietary business model vs. the open source business model. "Certain 'open source' software business models challenge our license-based software model. Open source commonly refers to software whose source code is subject to a license allowing it to be modified, combined with other software and redistributed, subject to restrictions set forth in the license. A number of commercial firms compete with us using an open source business model by modifying and then distributing open source software to end users at nominal cost and earning revenue on complementary services and products," the company revealed.

Last week, during the Financial Analyst Meeting 2008, a number of top Microsoft executives, among them being Bob Muglia, Senior Vice President, Server and Tools Business, Kevin Turner, Microsoft Chief Operating Officer, and even Chief Executive Officer Steve Ballmer, indicated that they managed to keep open source down through prolonged efforts, and that such work would only continue.

"These [open source] firms do not bear the full costs of research and development for the software. Some of these firms may build upon Microsoft ideas that we provide to them free or at low royalties in connection with our interoperability initiatives. To the extent open source software gains increasing market acceptance, our sales, revenue and operating margins may decline," Microsoft added.

Yet another challenge to Microsoft's proprietary software business model is from Software as a Service, with Google as its poster-child. Unlike Google which can afford to offer services for free or subscription based from the Cloud, Microsoft is stuck on the desktop. This is why the Redmond giant is laboring to evolve towards a new business model involving Software plus Services. But, as far as Microsoft is concerned Google's SaS is a real danger, as the Mountain View search giant is capable of offering online-based equivalents of Microsoft's software products for free, even though at an inferior quality.

"Another development is the business model under which companies provide content, and software in the form of applications, data, and related services, over the Internet in exchange for revenues primarily from advertising or subscriptions. An example of an advertising-funded business model is Internet search, where providing a robust alternative is particularly important and challenging due to the scale effects enjoyed by a single market dominant competitor. Advances in computing and communications technologies have made this model viable and enabled the rapid growth of some of our competitors. We are devoting significant resources toward developing our own competing software plus services strategies. It is uncertain whether these strategies will be successful," Microsoft stated.

Yet another risk is represented by Apple. The Cupertino-based hardware company produces both the Mac computers and the Mac OS X operating systems, claiming that it is offering superior products to PCs plus Windows. Microsoft has been slow to fight back, marketing-wise, and this aspect is visible in Apple's growth in terms of both Mac shipments and the added operating system market share.

"A competing vertically-integrated model, in which a single firm controls both the software and hardware elements of a product, has been successful with certain consumer products such as personal computers, mobile phones and digital music players. We also offer vertically-integrated hardware and software products; however, efforts to compete with the vertically integrated model may increase our cost of sales and reduce operating margins," the company revealed.

As far as the Windows operating system is concerned, Microsoft warned that the introduction of OEM PCs preloaded with Linux, in addition to Apple computers, can also hurt its business. In this regard, Linux's biggest advantage is the fact that it is free. "The Linux operating system, which is also derived from Unix and is available without payment under a General Public License, has gained some acceptance as competitive pressures lead PC OEMs to reduce costs and new, lower price PC form factors gain adoption. Apple takes an integrated approach to the PC experience and has made inroads in share, particularly in the U.S. and in the consumer segment," Microsoft said.
By: Marius Oiaga, Technology News Editor (http://news.softpedia.com)

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