Microsoft: Linuxs Biggest Patron

Which company is the biggest spender in the Linux world? Is it IBM? Sun Microsystems? Red Hat? Novell? No, the biggest spender in Linux, at least this year, is arguably the company most threatened by its success.

With this weeks $536 million settlement of a legal battle with Novell and Aprils $1.9 billion deal with Sun Microsystems, Microsoft has now agreed to pay more than $2.4 billion to companies likely to spend the money popularizing the arch-enemy of all things Microsoft.

Redmond is spending this huge sum of money voluntarily in an effort to get its legal problems behind it. By doing so, Microsoft is not only paying for its sins but also buying an extra dose of punishment from two competitors.

Given that neutralizing the Linux threat is Job No. 1 for many at Microsoft these days, a fair question after considering these huge settlements with competitors is, “Has Bill Gates gone nuts?”

My bet is that Bill has done his “Amazing Kreskin” routine and decided that no amount of money will save Novell or Sun from the fates that await them. But settling the cases will reduce distractions and some long-term uncertainty, both noble goals.

Microsoft has never actually lost a lawsuit. Sure, some judges have ruled against the company, but never in a way that really hurt the company in the marketplace or brought vanquished competitors back to life.

Redmond has the money to solve legal battles on its own terms, either by drawing out the proceedings to the point of inconsequence or writing a check just to make things go away. Sometimes, Microsoft even scores a trifecta: solving a legal battle, looking like the good guy and making money all in a single swoop—as it did with its $150 million purchase of Apple shares in 1997, later sold for a tidy profit.

Next Page: Sun is still in trouble.

Sun in Trouble

As for Sun and Novell, both companies are so caught up in their own dramas and so much at odds with the marketplace that the money will do them no real good. Novell has been trying to figure out what comes after NetWare for more than a decade now and has never managed a success.

Had it not been for the Internet boom that drove customers sudden interest in Unix, Sun would be in much worse shape than it is today. Still, the company seems stuck with a bad business model, unable to jettison its hardware business to concentrate on operating systems and software. Sure, $1.9 billion is a wad of cash, but its still not enough money to salvage Sun.

/zimages/3/28571.gifClick herefor a column on Suns “Microsoft mistake.”

While both companies will trudge on (and would do so even without Microsofts help), neither is in danger of seriously threatening Microsoft on a global basis. For that, you must turn to IBM, Red Hat and two competitors I will call “China Inc.” and “India Inc.” to represent Linux players in these emerging markets. This, especially the two new players, is what keeps Microsoft execs awake at night.

The Novell and Sun settlements arent something Microsoft really had to do, though it looks like one of the companys New Years resolutions must have been to get its legal mess cleaned up during 2004. And as with most things it does, Microsoft has largely succeeded.

Sure, there is still a battle with Novell over Microsofts attacks on WordPerfect that both sides predict will end up in court. Theres also another suit involving Real Networks and the European Union antitrust action to fight.

Still, compared to where Microsoft started the year, it will end 2004 with considerably fewer problems than it had when the ball dropped in Times Square last January. And Microsoft will have accomplished this at no significant cost to itself, at least for a company with nearly $65 billion in the bank.

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