The house that Gates built has termites. Termites are insidious little bugs. The damage isn't visible until a whole wall collapses, and then it is too late. You can't see termites unless you take a good look at the foundation to see if there are trails leading into the structure.
Microsoft (MS) has successfully faced competitive threats before, such as OS/2 in operating systems, Word Perfect Office in the suite arena and Netscape in web browsers. They defended their turf by a combination of economic power over hardware companies that sell systems, sheer marketing power (read $$$), and forcing competitors to play catch up by changing data formats with almost every upgrade.
One particularly insidious competitive technique was to make pre-release software freely available for download, chilling any market that a competitor looked likely to take significant share. This was most obvious in the web browser market as they gave away Internet Explorer for nothing. Clearly this is selling below the cost of goods, but for some reason, the Justice Department has never raised that issue.
Let's look for termite trails.
Customers are finally getting wise to one of MS favorite monopoly tools - changing file formats with every new version. This is one of the lock in tactics that MS uses. If even one of your clients uses the new MS formats, you either have to upgrade or force the client to save the documents in an older format. MS doesn't make that convenient for obvious reasons.
The terms of the new licensing (License 6.0) take control of software costs from the purchaser and give it to the seller. A significant number of companies could not afford the new terms, and another group simply wouldn't accept the them. Some of these used to be married to MS software only.
Another effect of the new license is that a number of companies are looking at open source or competitive alternatives for the first time. This plan to lock customers in, and competitors out, has done more to increase interest in open source than anything open source has done.
MS's most recent operating systems, Windows 2000 and XP, are getting new EULA (End User License Agreements) with each service pack. Along with fixes for bugs and security holes you could drive a semi through, MS is helping itself, via the EULA, to permission to enter and scan your system at any time for security fixes, valid license certification, illegal software or copyrighted files, and who knows what else.
Businesses who understand this have responded by buying quantities of Windows 98SE, the last good version of the original Windows 3.x line. Once Longhorn, the next OS in MS's schedule arrives, Windows 98SE will be unavailable. It seems that not everyone is willing to let MS arbitrarily search their systems. This new EULA is the biggest security hole in existence, now that Passport has been secured, more or less.
Open standards are increasing their coverage and desireability as computing environments get more complex. Open standards like XML, DOM, Corba, and the broad array of W3C standards for the inter and intra net have prevented MS from duplicating on the Web their Office suite lock in. MS standards have become less attractive as the open standards now have good support.
Java has taken hold of a significant part of the Internet and internal corporate web servers. BEA, Websphere, Apache and open web server architectures are taking an increasing share of the market that MS aims at with its Internet Information Server. Java is also providing cross platform support in non time critical code, such as the user interfaces. This makes full cross platform (multiple OS) support less expensive for software vendors.
A number of consortiums have been formed to establish cooperative ventures and standards. Coop standards are taking hold, and some of the new ones go where MS would not - namely data standards. The move towards XML as a basic data description is one in particular that strikes at a key tool of MS's monopoly - making Office file formats incompatible to force other companies to upgrade. If the data is all in XML, that lever is broken permanently.
MS is entering new markets to expand their hegomony over anything that uses digital computers as a component. MS execs reason that they should be able to finance whatever they need and leverage their monopoly in desktop systems by use of desktop tie ins.
Let's look at the record. Xbox is a failure compared to the two main competitors, selling perhaps 20% of Sony's Playstation 2, and without Sony's huge base of established customers. MS's plan to gain market share by cutting costs of the box [http://www.theinquirer.net/?article=5166] by squeezing suppliers will not solve their problem, but only aggrivate their suppliers. MS's plan to provide on-line gaming will be matched easily by Sony. Xbox may eventually be a breakeven operation, but that's too little for MS needs.
Interestingly, Sony's new Playstation 3 design has spun off a new chip design, by IBM, called a 'cell chip'. These new chips have a potential for a performance increase of two orders of magnitude over current designs.
MS has announced plans to ship a 'media center' system, based of course on the Windows environment. While it is impossible to be sure of the outcome, I expect that lower cost devices like TiVo and similar boxes will take 80% of the market because of price. Also, it won't be too long before open source develops a media center application as most of the components are already there.
Given MS's record of shipping delays, it may be that open source competitors will be in the market before MS. I expect 'Media Center' to be a bigger flop than the Xbox.
This is perhaps the biggest long term threat to MS. Now there are good software options for the desktop available at low or no cost to run most software that companies really need. When current adopters get over the early plunge and tell everyone that the water's fine, then MS Office will suffer. It's a lot closer than you think.
The penetration of Linux in servers is only a part of the tip of the iceberg that the MS ship will run into. Red Hat has announced it will build Linux desktops [http://www.theregus.com/content/4/26143.html] for the business environment, adding to its Advanced Server, Content and Collaboration Management, and Database products for corporations and small and medium sized businesses (SMBs).
From the same Linux link:
"Leading alternatives to Microsoft's Office desktop productivity suite include Palo Alto, California-based Sun Microsystems Inc's StarOffice 6.0, Boston, Massachusetts-based Ximian Inc's Desktop and Connector, and Ottawa, Ontario-based Corel Inc's WordPerfect. Corel recently introduced new volume pricing to temp potential defectors."
While Open Source desktop components are not as mature as the Windows Office Suite, their non-proprietary nature and nominal cost make them attractive for a wide range of business. However, applications for the Linux desktop are still behind the broad array of applications developed for the MS environment.
But this too can be delt with by the use of Virtual Machines (VM) or emulators. It is quite possible for many MS applications to run under Linux using a VM or emulator. You can find my overview on these and five other alternative operating systems in my September 2002 Byte column.
This Wall Street adage describes MS's dilema - they have 90+% of the desktop OS and Office suite market. Where is the growth going to come from? Xbox isn't it. Video isn't it. The new media centers won't be it. The big problem for MS is twofold: Their reputation for aggressive monopoly behavior and insecure software, and their inability to leverage their monopoly techniques in new environments that can stand alone, separate from a PC.
With 90+% in desktop OS and Office, those market shares have no direction to go but down. Unix based alternatives to MS server systems are taking share from MS every year. Cheaper and better can beat even a monopoly.
One cause of failing monopolies are side effects monopolies cause. A monopoly charges higher prices because it has no effective competition. But those higher prices are themselves attractive to competitors, who look for ways to capture a small part of the business, because even at lower prices, they can make good profits.
It shouldn't be a surprise that Sun is offering Star Office at a much lower price than MS. Corel offers Word Perfect Office for preload and HP and Dell have replaced MS Works [http://www.theregus.com/content/4/26118.html] with Corel on some desktops. Open Office and Gobe Productive are open source alternatives that are free for download. MS will have to deal with being nibbled to death.
Monopolies tend to grow fat with all their profits, and when it becomes necessary to compete on a level playing field, they have lost that skill that comes with experience. Even worse, monopolies fail to recognize when it is necessary to compete. When they finally figure it out, they are already losing market share and profits are vanishing.
No monopolies get back to their earlier dominance. Some disappear completely.
"Compatibility with Microsoft Office formats is extraordinarily challenging, because they can change what the blobs are," he told a press and analysts' gathering in San Francisco, California, on Friday.
Poll of managers in Australia shows more than half of them are resisting Microsoft's new licensing system.
Venezuela Sets Open Source Policy
It was characterized in a statement by Dr. Felipe Pérez-Martí, Planning and Development Minister, as "Open source whenever possible, proprietary software only when necessary."
See Also: Living Without Microsoft
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Copyright 2002 by Bill Nicholls. All Rights Reserved.