Linux, Open Source Remain Thorns in Microsofts Side

Linux and open-source software remain high on the list of core threats to Microsofts business going forward.

In an analyst and press teleconference to discuss the Redmond software makers fourth-quarter and full fiscal 2003 financial results on Thursday, Microsofts chief financial officer John Connors outlined the five largest risks and drivers to Microsofts business going forward.

“The general economic environment is risk and driver number one, Linux and non-commercial software is risk number two. Growing new billings against a large base in a tight spend environment is number three, litigation is generally a fourth risk and, finally, executing with excellence on multiple fronts is the last risk,” he said.

Acknowledging that it is facing challenges across the board, Microsoft has recently changed its staff compensation structure, shuffled staff and become far more aggressive with regard to the threat from Linux and open-source software.

Earlier this month, in a move Microsoft said would help it continue to attract and retain key staff, the company restructured the way it compensated employees. Starting in September, Microsoft will give staff actual shares in the company rather than stock options as is currently the case.

The new Stock Award program will allow staff to earn actual shares of Microsoft stock over time, rather than being awarded options that give them the right to purchase stock at a set price.

Redmond is also ratcheting up the pressure on its staff to improve connections with customers, increase internal efficiency and meet competitive challenges, especially those surrounding Linux, head-on.

Microsoft executives are increasingly focusing on the Linux threat. In May, the German city of Munich decided to dump Windows and move to Linux and other open-source software, despite the intervention of CEO Steve Ballmer.

In February, Microsoft chairman and chief software architect Bill Gates told more than 600 of Microsofts Most Valuable Professionals (MVPs) that he is taking the Linux threat seriously.

In its 10-Q filing on the quarter to end-December 2002, Microsoft also said that the popularization of the open-source movement continues to pose a significant challenge to its business model.

There have also been a number of end-of-financial-year staff shuffles. Peter Houston, who as the senior director of Microsofts Windows Server Strategies has had to defend and explain the companys response to the competitive threat posed by Linux and open source for the past 18 months, moved to Microsofts Enterprise Management Division, where he will work on the upcoming Systems Center product.

That followed the reorganization of Microsofts platforms group, where the Developer and Platform Evangelism Business, the Windows Server System Business, and the Enterprise Storage and Management Business were combined under the existing Servers and Tools Profit & Loss center (P&L), headed by Senior Vice President Eric Rudder.

Microsoft, which is also hosting a financial analyst day at its Redmond campus next week, plans to share its business and product plans in greater detail and will also revue its current capital management strategy at that meeting, Connors said.