The question is, did Microsoft act too late? In just the past year, many companies have found that open-source software has gained a level of sophistication that makes it a viable alternative to Windows for server systems and Web site operations. Amazon.com, Verizon Communications and Air New Zealand have all switched to Linux over the past 12 months to cut costs. Initially, Linux was seen as a competitor to Windows only for server operating systems, used by roughly 27 percent of corporate servers and more than half of all Web servers, according to industry researcher IDC. Recent moves, however, have begun to strengthen Linux's appeal in desktop PCs when combined with open-source alternatives to Microsoft's Office, such as Sun Microsystem's StarOffice. That's leading some longtime Microsoft customers to the next, once-unthinkable step: serious consideration of Linux and other open-source software as a replacement for Windows and Office on their desktop systems. Satish Mahajan, chief information officer of American Automobile Association, is evaluating Linux for his server systems and beginning to eye the open-source software for his desktops as well. "When I talk to my colleagues, I hear more and more willingness to move a portion of their businesses to Linux. I'm still weighing the pluses and minuses, but it has moved up on my scale," he said. Mahajan and others say cost is only one reason for the decision to evaluate Linux. In Microsoft's modern world, its products are seen by a growing body of corporate technology managers and even some of the world's governments as inflexible, expensive and bloated. Large companies and public agencies -- some of Microsoft's best customers -- are weighing Linux and open source to simplify their operations and get off the update-replace treadmill long prevalent in the computer business. Microsoft executives acknowledge the rising threat but, mindful of the popularity of Linux and open source among their customers, have tempered their comments. "We need to take a balanced tone," said Microsoft's Veghte, the man assigned by CEO Steve Ballmer to come up with a competitive strategy toward Linux. "No matter how you look at it, Linux is a huge competitor and isn't going to go away." Still, Ballmer -- never known to mince words -- is quick to point out where he sees Linux lacking. "The Linux client hardly runs any applications except a bunch of shareware stuff that's not very good," he said. "There has yet to be any innovation, new features, new capabilities out of the Linux platform. "First they cloned Unix and there are people working on cloning some of our stuff. But it's just a cloning OS. I don't think anyone should expect anything innovative coming out of that world," said Ballmer. The most difficult part of this competition is one of simple economics: Linux and other open-source technologies are licensed for free. That's where Microsoft can't compete, a point Ballmer willingly concedes. As Ballmer said at a recent conference in London, "We cannot price at zero, so we need to justify our posture and pricing." But Ballmer thinks price is only one reason why companies are considering Linux. "People are going to look at Linux, whether our stuff costs $5, $50 or $100. So we have to work that value proposition every day." Numbers cause concern
In a recent survey of 225 chief information officers, 29 percent said they owned Linux servers and 8 percent are formally considering buying them. More troubling for Microsoft, 31 percent of those who recently purchased a new Linux server used it to replace a server running Windows. Many technology managers cite the controversy over Microsoft's new licensing plan in their reasoning. "We're looking at Linux as a less expensive alternative to Windows and Office," said Alan Flint, systems applications manager at Richmond Wholesale, a food distributor. "I'm looking for more simplification in my environment because I'm displeased with Microsoft's licensing programs." Mahajan said Microsoft's licensing plan is also driving him to take a closer look at Linux. "The cost of Microsoft's software continues to increase and change from the old days, where you could buy Windows 98 and keep it for three years. That's not an option anymore. You have to pay." Utah's Windley agrees, saying the new plan "just makes people more leery" of Microsoft. "I've got a whole group of IT workers in this state who are tired of the licensing headaches with Microsoft. They want OpenOffice (an open-source version of Sun's StarOffice) just to do away with the headaches." Flint sees another trend driving large companies away from Microsoft: the company's practice of issuing frequent upgrades and new versions of its products, often ahead of its customers' willingness to buy those products. "Microsoft wants to lock in their revenue by having customers tied to subscriptions. I think they are changing their licensing because there aren't many features that users are clamouring for." Cherry of Directions on Microsoft said these comments are echoed throughout the industry as technology buyers are much more price-conscious than they were in the 1980s and 1990s. "Linux is becoming more of a threat because customers used to be a lot less sensitive. Whether it was money or whether each version of Windows had enough compelling features, they were willing to upgrade even if it cost them more hardware," he said. "Now they look at something like Windows XP and say, 'OK, it's more stable, but I have to buy new machines. I don't think Microsoft has ever made a version of its products that used less resources than the previous version.' Or, 'Windows 2000 Server looks really good, but all I need is a Web site, and I can take this old 486 and I can put Red Hat Linux and Apache on it and have a Web server up in no time at all,'" Cherry said. Support from big guns
Moreover, technology buyers said Linux is getting better in quality and range, largely because of help from Microsoft's rivals. "Once folks like IBM and Sun started providing support for Linux, (they) made Linux better by plugging some holes and providing better support," Mahajan said. That, coincidentally, is exactly how Microsoft got its foot in the door with Windows back in the 1980s. "Microsoft used the divide-and-conquer marketing tactic. They didn't go to IT managers -- they went to business departments. And suddenly, the IS manager looked around and said, 'Man, we're running a lot of Microsoft stuff.' So I think that's going to happen with Linux," Cherry said. Nevertheless, despite the significant challenge posed by Linux and open source, Microsoft hardly has its back against the wall. Linux may have become a bona fide competitor in the server market, but Microsoft still rules on the desktop. Industry veterans, including many Microsoft customers, note that it is extremely difficult -- and expensive -- to unseat the incumbent technology in large companies. One of the largest costs is retraining users. "It would be very hard to convince the mainstream user in Utah state government that Linux is the right desktop choice for them. Most of the reason for that is not functionality -- it's training," said Windley, who supports 22,000 desktops throughout Utah. As a CIO contemplating making such a huge change, he noted, "you have to be willing to fall on your sword, because you very well may expire doing it." In addition, those companies that did agree to Microsoft's new licensing program have paid to use the company's products for up to three years in advance, making it unlikely that they will switch to a competitor. But the mere existence of Linux will most likely benefit Microsoft's customers in the long term. In fact, many longtime analysts said that, with the slump in the technology business and the weakening of some key rivals, Microsoft needs Linux. "The funny thing about this Linux thing is it might just end up being the perfect kind of threat for Microsoft," said Rob Horwitz, another analyst with Directions on Microsoft. "It's something that ain't gonna kill Microsoft, but it is something that will help it focus on who the enemy is and what they have to do." Key to that battle plan is making its products more secure and reliable, customers say, as well as changing licensing policies to be less complicated. Otherwise, Microsoft will find itself the victim of a time-honoured trend in the computing business: obsolescence. "Linux is the end game in 'good enough' computing," Illuminata's Eunice said. "It's great stuff, it comes at little or no cost, and it's good enough to do the job. Just as Windows gave Unix makers fits in years past -- and the Unix makers gave minicomputer guys fits, and minicomputer guys gave the mainframe makers fits -- open source is giving Microsoft and Windows fits."
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