Microsoft and the Linux threat

Ravi Madapati
Faculty Member
Icfai Knowledge Center

Growing acceptance among corporates

Since 2000, Linux has increased its market share in corporate applications. It runs on nearly 10% of all servers and is growing at about 23% a year[1].Roughly 30% of chief technologists are considering moving to Linux[2].

Peripheral makers from HP in printers to Epson in scanners have made sure that they have Linux-compatible offerings. Sun has spent millions of dollars on its Star Office software suite that give Linux users programs that work like and are compatible with PowerPoint, Word and Excel. Linux is also being used in consumer-electronics appliances like the best selling Sony PlayStation. A survey by Goldman, Sachs & Co. in early 2003 has shown that 39% of large corporations use Linux. One of the champions of Linux is IBM. In late 1999, Samuel J Palmisano, then head of IBM’s server group and later the company’s CEO had asked his staff what the next big trend would be in servers.

After several rounds of internal discussions, IBM decided to use Linux in a big way. During the next year, IBM earmarked $1 bn to retool its software and computers to run on Linux and devoted 250 engineers to working with the open-source community. Linux has enabled IBM to put resources behind lower-cost Intel chips without becoming heavily dependent on Microsoft. IBM has more than 4,600 Linux customers. About 15% of the IBM mainframe capacity shipped in the first half of 2002 used Linux. And in the fourth quarter, IBM sold $160 mn worth of Linux servers, equal to the combined tally of its nearest competitors, Hewlett-Packard and Dell5 .

Microsoft’s response

Microsoft has done its best to put down the Linux uprising. In 1999, the company created a website under the heading ‘Linux Myths’ that questioned Linux’s performance and reliability. In June 2001, in an interview with the Chicago Sun-Times, Ballmer labeled Linux a ‘cancer’ because open-source rules impinged on intellectual property rights. In recent times, the software giant has continued to lobby governments to expand their purchases of Microsoft software. But dozens of countries are considering legislation that encourage the use of open-source software such as Linux.
While Linux itself is free, Microsoft has argued that it costs far more to maintain Linux than Windows. To prove the point, Microsoft commissioned a study by IDC that was released in December 2002. The study concluded that Microsoft had created more software tools for managing and updating Windows. So Windows would be 11% to 22% cheaper to run than Linux over a fiveyear period in four out of five different common computing tasks, such as sending files to printers and running security applications. Windows was more expensive only when it came to serving up Web pages. But Microsoft critics feel that the company had turned the survey to its advantage by selecting scenarios that would invariably be more costly using Linux.

Conclusion

Linux threatens Microsoft precisely because it is not like any of the company’s previous challenges. “We’re used to competing with products and companies,” admits James E Allchin[3], group vice-president of Microsoft’s Windows business. “It’s different than anything else we’ve dealt with before.” Although the people committed to Linux seem to be developing software with altruistic rather than commercial motives, Linux is gaining rapid ground. Linux seems to be motivating programmers in a way that corporations often don’t. “Programmers are like artists,” according to a consultant. They like to demonstrate their skills to their peers. In open source, they get this opportunity. But at most corporations, their best work is hidden behind “locked and guarded” doors. The success of Linux also implies that no one company, not even a giant such as Microsoft, has a monopoly on all the best programmers. By harnessing peer reviews, allowing contributions from anyone who can write good programs, open source avoids secrecy. The fundamental appeal of open source: Seems to be people power. Companies employing open-source software like the idea of modifying programs more easily to meet their needs or just fix problems. New companies are cropping up everyday offering Linux-based products and most of them are free. What can Microsoft do to counter Linux?

References

1. Businessweek, March 3, 2003, The Linux Uprising
2. Fortune, January 21, 2003, Lindows: Brining Linux To The Masses
3. Fortune, January 21, 2003, Banking on Linux
4. Fortune Small Business, December 2002/January 2003, Five Not To Grow in 2003
5. Forbes, October 6, 2002, Linux Gets Friendlier
6. Fortune, October 6, 2002, Can The Brash Brothers Bounce Back?
7. Forbes, September 2, 2002, Doesn’t Do Windows
8. Fortune, September 9, 2002, Servers With A Smile
9. Economist, June 22, 2002, Losing His Sparc
10. Economist, July 21, 2001, Revenge of The Dinosaurs
11. Economist, April 14, 2001, Out in the Open
12. Economist, January 27, 2001,The Penguin Gets Serious
13. Economist, October 10, 2001, Microsoft Creates Another Perfect Rival
14. www.linux.org
15. www.linututorial.info
16. www.reallylinux.com

[1] Fortune, January 21, 2003 in Lindows: Brining Linux To The Masses

[2] According to market researcher Gartner Inc.

[3] Source: Businessweek, March 3, 2003.