Penguins Gatecrash Bill's Party, Spoil Pie

by Hinesh Jethwani    Sep 10, 2004

A recently released document is spreading a wave of optimism in the Open Source community, and Tux vendors couldn’t be happier. The paper in question is Microsoft’s 10-K filing to the Securities and Exchange Commission. The Redmond giant drops clear hints of falling revenues and declining profit margins due to competition from Linux in the 68-page report. So what damage has Microsoft’s revenue ’pie’ suffered?

“The Linux operating system has gained increasing acceptance as competitive pressures lead personal computer OEMs to reduce costs. IBM’s endorsement of Linux has accelerated its acceptance as an alternative to both traditional Unix and Windows server operating systems. Linux’s competitive position has also benefited from the large number of compatible applications now produced by many leading commercial software developers as well as non-commercial software developers,” Microsoft said in the submission.

However, Microsoft India is totally unfazed by the ’so-called’ penguin threat. Speaking to CXOtoday, Abhijit Das, manager, platform strategies, Microsoft Corporation India, said, “Microsoft has always had competition. On the word processor front, we battled with Borland, IBM, WordPerfect and the likes. Today MS Office is the undisputed productivity suite leader. We managed to edge out Netscape Navigator in the browser war with IE, and have fought hard with Unix in the server space. The fact is that our base is so massive, that even if our growth is smaller this year, in terms of market share there’s absolutely no visible competition.”

Statistics from the Linux front prove that Microsoft’s fears are not necessarily unfounded.

Javed Tapia, director, Red Hat India, said, “Our business is growing like never before. Red Hat has experienced tremendous success in the adoption of our enterprise Linux platform. We sold 98,000 new subscriptions in the last quarter. Our continued success is the proof of the success of the power of the open source model. Open Source Architecture is finding greater acceptance by government, enterprise and education segments across the world, because of the performance and value it delivers.”

Before your imagination runs wild and you begin to see flying penguins everywhere, the reality is that Linux has just learnt to crawl; at least as far as competition in the desktop space is concerned. Some may argue that the enterprise market is where the bullion is. Sure, but then again the desktop game is all about numbers. The more the merrier. Microsoft’s having a ball and its going to take more than just Linux on servers to stop the party. A full-fledged desktop foray is necessary if Linux wants to go beyond tickles and cause some serious damage.

Linux is quickly changing market dynamics, and it seems that Microsoft isn’t the only one on the receiving end.

“I believe that Unix is still taking the primary beating in the migration space. Customers are feeling the need to address the price pain point, as Unix presents an expensive overall proposition, be it hardware, software or maintenance. However, the much talked about value add of Linux, i.e. source code visibility, is diluting quickly. Customers now realize that they simply don’t need to work on source code, when someone else can do it for them. There are already 328 (registered) flavors of Linux out there, and the figure shows no signs of slowing down. Going by the way Linux distro vendors are storming into the market, my prediction is that there’s going to be one too many players in the Open Source space soon. A saturation point is brimming quickly. Things will change drastically then,” concluded Das.

A word of caution to Linux vendors beaming with pride - No doubt, they have achieved the unthinkable. Competing with a multi-billion dollar monopoly, and succeeding to ’some’ extent is impressive. Linux vendors now need to make sure that the penguin takes off on rocket fuel and not paper wings, as there are plenty of spectators waiting to see it crash, and even more wanting to blast a hole through it once its airborne. And yes, one more thing - the market is definitely too compressed for Linux flavors to be released faster than Baskin Robbins dishes out ice cream.

Tags: MS, Linux