Microsoft Grapples with Linux Threat

Microsoft corp., under siege by the growing popularity of Linux, is feeling increasing pressure to broaden its Windows platform base and in some minor ways is beginning to relent.

Many corporate customers—angered by the Redmond, Wash., companys aggressive and, at times, threatening approach to licensing older Windows versions and upgrading to Windows 2000—are evaluating Linux for the first time, if not embracing it altogether.

“[Users] are tired of battling Microsoft at every turn and dealing with ever-increasing licensing costs and the continued audit threats from the company and the Business Software Alliance,” said Chuck Kramer, vice president of IT services at Social and Scientific Systems Inc., in Bethesda, Md. Kramers company oversees 320 systems while also providing technical and information services to a number of other businesses. “Linux has become a very appealing and cost- effective alternative to them,” Kramer said.

As a result, Microsoft is starting to voice concerns about the threat the open-source operating system poses to its financial future. Doug Miller, group product manager for the Windows Server Group, told all who would listen here at LinuxWorld last week that Microsoft takes Linux seriously.

“While we are threatened by the Linux business model, where companies give away free software, we are not at all worried about that operating system from a technological standpoint,” Miller said. “There are no earth-shattering technological innovations in Linux. Actually, theres a lot less than can be found in the Windows and Unix platforms.”

Miller conceded that Microsoft has learned some things from the Linux industry and that the company was already incorporating some of that knowledge into its products.

“We will be much more aggressive in licensing some of our source code to large commercial customers who feel they need it to feel more comfortable in porting themselves,” Miller said. “We license the Windows CE technology and allow people to innovate on that platform using our source. [Thats] a new policy for us.”

Miller also did not rule out the possibility that some Microsoft applications and services could be ported to Linux down the line but added that any such move would be customer-driven. And, so far, there has not been any real customer pressure to move the companys desktop or server products to Linux.

“We are not religious about this,” Miller said. “We will treat Linux like any other platform. Were commercial software vendors and will do what our customers want.”

But, as Microsoft wrestles with the Linux threat and how best to deal with it, its competitors continue to power ahead (see chart).

Sam Palmisano, president and chief operating officer of IBM, last week announced the Armonk, N.Y., company would commit more than $300 million in additional Linux services over the next three years.

“Some are excited about [change]. Some are really threatened by it,” Palmisano said. “But there is no doubt that Linux has become a disruptive technology that will continue to power its way into the enterprise.”

Figures from International Data Corp., in Framingham, Mass., show that Linux use is increasing at a faster rate than Windows use, last year growing at 28.4 percent compared with 21.8 percent for Windows. Linux is expected to capture about 38 percent of the server operating system market by 2004, Palmisano said.

Linuxs growth is stealing a share of the enterprise market Microsoft had hoped would be filled by Windows 2000, whose sluggish sales have led Microsoft to terminate, by June, its volume license agreements for Windows 95, 98 and Millennium Edition which, it hopes, will drive users to Windows 2000.

Microsofts .Net strategy, which is designed to ultimately lessen the companys dependence on desktop sales, has become an important tool to keep customers and developers from migrating to Linux.

To further its .Net strategy, Microsoft has invested $135 million in Canadian software developer Corel Corp., of Ottawa. The two companies entered into an agreement whereby Microsoft can call on Corel to port its .Net platform to Linux at any time within the next three years. “I suspect this will happen,” Corel CEO Derek Burney said here. “While Linux is competition for them, it also offers some very interesting alternatives to Windows.”

But by the time .Net is a reality, the charge to Linux may be irreversible.

Even some of Microsofts closest allies are criticizing the companys inflexibility with regard to other platforms. William Swope, vice president of Intel Corp.s architecture group, in Santa Clara, Calif., said the adoption figures speak for themselves.

Linux coming of age

“linux technology is coming of age, and we are seeing an increasing number of enterprise-level clients adopting it,” Swope said. “Many IT managers are looking at the cost-effective Linux-IA combination than other more expensive alternatives.”

But the greatest threat to Microsoft is coming from those small and midsize companies that are implementing Linux.

“These will be the large corporates of the future, and those IT managers will be familiar with and want to continue running Linux,” said Social and Scientific Systems Kramer. “Going forward, that is a huge threat to Microsofts business.”