Linux's Role In Microsoft's Decline

nerdyH writes "As early as last quarter, Microsoft admitted that Linux and netbooks were eating into its fat profits. Recently, it came home, with the software giant announcing its first-ever layoffs. LinuxDevices interviewed Linux Foundation Director Jim Zemlin on Linux's role in Microsoft's misfortunes. Zemlin sums it up pretty well: 'Companies can offer their own branded software platform based on Linux. If Microsoft is getting 75 percent margins, you would like some of that high-margin business, too.'"

Comments

Oh, Dear

[hardburn]

As early as last quarter, Microsoft admitted that Linux and netbooks were eating into its fat profits. Recently, it came home, with the software giant announcing its first-ever layoffs.

Yeah, it couldn't be because there is a massive economic crisis going on. It's all Linux.

Re:Oh, Dear

[Wandering Wombat]

Shut up! You don't know what you're talking about. Obama's made of kittens and sparkles, held together with HOPE... and more sparkles! If anything bad happened this week, it's Linux's fault!

Re:Oh, Dear

[je ne sais quoi]

Also, if you look at the trend in Microsoft Windows "market share" estimated by people like Net Applications, you can see that the decline of Windows started long before the housing bubble deflated. They were still being rated at 96% of the market in 2004 and 2005 and have been in what looks like continuous decline ever since. Granted, it's not much of a decline yet, only 7% or so according to Net Applications, but it does serve as evidence that Microsoft's troubles did not start with the economic crisis, the economic crisis may have compounded their existing troubles though.

Re:Oh, Dear

[Penguinisto]

Windows sales (or at least revenue) shrank by 8% (CNN blames Vista sales in particular). Since PC/Server sales in the industry overall didn't drop (let alone by that much), and netbooks only count for 5% of the whole market (with Windows + Linux netbooks combined in that figure), it stands to reason that there are other factors besides economic malaise that contributed to the losses.

Re:Oh, Dear

[fuzzyfuzzyfungus]

I suspect, both from the statement, and from the fact that this is a Linux Devices interview, that the "own branded software platform[s]" in question are more likely to be replacing WinCE or WinNT/XP Embedded(which does, indeed, seem to be happening a fair amount). To a lesser extent(though still a notable one) netbooks have been doing some of the same.

Re:Oh, Dear

[Anonymous Coward]

..Or most people being perfectly content with XP

Re:Oh, Dear

[UnknowingFool]

It's not just the more enterprise market share that Linux can get. It's also the threat of more market share as a negotiation tactic. Before companies didn't have much choice. Windows or higher priced Unix servers. Now they can negotiate with MS. MS lowers their pricing or they threaten to migrate to Linux.

Also the Linux threat in the interview is not just in the Enterprise Server market. Embedded devices and netbooks are going with Linux due to its ability to run lean. Vista is not currently lean enough for these applications. XP is lean enough though but not as customizable as Linux.

Redhat and Novell/SuSe offer their Linux solutions. IBM and HP will support these distros and others. That's 4 major players right there. Also this doesn't just apply to companies. China has their own brand and Russia is exploring one as well.

Re:Oh, Dear

[SanityInAnarchy]

now that our president is a chimp in a business suit.

I wasn't even in a trollbiting mood, but this just made me laugh.

Eight years of misunderestimating the nukeyoular policies of a man who even looks simian, and you think this president is the chimp?

Re:Oh, Dear

[es330td]

I think that what has probably happened is that MS knows their share has been declining but hasn't had to lay anybody off because the decline simply allowed them to not replace people who left through natural attrition. The economic slowdown made people more likely to hang on the security of their job and forced them to let go the people who would normally have left on their own.

Re:Oh, Dear

[linhares]

Yeah, it couldn't be because there is a massive economic crisis going on. It's all Linux.

Microsoft is getting beaten down by Apple at the high end and by Linux on the netbook space. Obviously, I don't mean that people are buying linux netbooks. Hold your horses there. But MS's bargaining position has changed because of linux. They could have said in 2002 that netbooks should cost $600, because of the $200 windows copy. But that does not apply anymore. They sell XP for $28-$32. This is a huge relative loss to what they were making.

And at the high end, Apple is all over it. Take a look at bestbuy. It is rare to find a $1000+laptop, Apple notwithstanding. Or take a look at Amazon's best seller list, only to find hordes of netbooks and macbooks, perhaps with a 1 in 20 Vista machine.

To make matters worse (for MS), if these high-end phones and proposed tablets such as the techcrunch one come to life, they won't be using windows. Nothing below $300 can afford windows, even at $32.

Finally, MS's stock price has been walking sideways for years and years and years. They cannot bring the best talent in the basis of money or stock options alone. This is not the year of linux on the desktop. But its presence is being felt in the markets undergoing disruptive innovation, like the netbooks.

Re:Oh, Dear

[mikael]

Embedded devices and netbooks are going with Linux due to its ability to run lean.

It has been known for at least 20 years that systems-on-a-chip or embedded systems were going to take off - although it has not been until wireless communication and true-color displays have become affordable that this has happened.

For many years, Microsoft could specify the standard of hardware required to run their OS, and the hardware vendors had to obey in order to get compatibility certification.

Linux distro developers did not have that level of influence over the hardware developers and so had to modularize their software in order to adapt to hardware with limited memory and resources.

By not having this evolutionary pressure, Microsoft have really pushed themselves into a very restricted evolution path, and just hope that memory increases enough to run the embedded versions of their OS.

Re:Oh, Dear

[Jason Earl]

The current crop of netbooks are powerful enough to run Vista. They don't run Vista because Microsoft has special netbook pricing for Windows XP. A reduced-price version of XP is a good move for Microsoft in that it stemmed the tide of Linux adoption, but it has signaled lower margins for Microsoft.

If the netbook version of Windows 7 doesn't come with a reduced price then Linux is likely to make up some ground on these devices. If the netbook version of Windows 7 does come with a reduced price, then Microsoft will still continue to see lower revenue. Either way competition from Linux hurts Microsoft. As the extreme low end of the spectrum becomes more and more powerful (and useful) Microsoft is going to be under increased pressure to sell Windows for less.

Of course, Windows 7 could make up some ground on the high end. I suppose it is possible that Windows 7 will be so cool that the release of Windows 7 will reverse the trend on the high end towards Apple's products, but I don't see that happening.

Re:Oh, Dear

[ushering05401]

"Windows 7 isn't leaner. It just feels a bit better, and then that is only because it is being compared mainly to Vista."

You wouldn't know it from the press lately... Might as well rename 7 to Microsoft Obama.

Re:Oh, Dear

[hairyfeet]

And I think that can be directly traced to them losing their way and ignoring their core markets. One of MSFT's biggest customers have always been business. From the littlest SOHO to the largest enterprise MSFT has been right there making boring as hell backwards compatible low resource business OSes. But then with Vista they suddenly take a giant turn into left field and completely blow off their core market to get into a multimedia pissing contest with Apple.

I mean it is no wonder you have so many sites like this and this showing step by step how to turn Win2k8 server into a desktop. It is because MSFT has abandoned their business users to try to compete with Apple in the multimedia space. Which frankly is insane as Apple has this little thing called the iPod that pretty much gives them the lock on the multimedia space, not to mention the hip factor, and the amount of money they make off of business licenses and support contracts is worth FAR more than the niche they are trying to muscle their way into.

Mark my words, and the MSFT shills can mod me down all you want, but the biggest threat to MSFT is MSFT. They are neglecting their core markets, they are flailing around from one idea to another like the company has ADHD, and by trying to stuff everyone on the planet into this giant bling bling multimedia OS they are screwing over one of their biggest customers, the business users. I mean, is there anyone here with a straight face that can say Vista was made for business? The thing practically screams HTPC! It is like they fired all their business and accounting guys and put some marketing drone in charge of the whole company. And worse, the drone wants to be as cool as Apple so bad it hurts.

Mark my words, if they do not get some common sense and make another business OS then companies like Red Hat will be more than happy to take a shot at those customers. If they want a single codebase, fine and dandy. Make a "Win2k10 Pro" out of Win2K8 server and leave Win7 for the home users. But I truly believe that Win7 will bomb, just as hard if not harder than Vista. And when it does all those corporations that have been ignored for two OS releases will start to look for alternatives.

Re:Oh, Dear

[ozmanjusri]

I see reports of Win7 running acceptably on virtual machines and 1 Ghz machines.

Hype and marketing.

Real world benchmarks are gradually creeping out and guess what?

"any illusions about Windows 7 somehow being leaner or more efficient than Vista can now be thrown out the window."

Via Engadget

Re:Oh, Dear

[Jason Earl]

The problem isn't that the version of XP used on netbooks took some time and effort to create. The problem is that netbooks running XP are being sold instead of netbooks running a much more expensive version of Windows.

Even just a few years ago no OEM had that sort of leverage over Microsoft. You either built hardware that worked with existing versions of Windows (with existing cost structures) or you didn't build a device at all. With the netbook Microsoft showed that it was willing to cave on price if the alternative was a PC running Linux.

Sure, the netbook version of XP wasn't expensive to create, but Microsoft's R&D department is essentially a fixed cost. The bit that this particular set of articles missed is that Microsoft's unit sales actually increased by 1% in this last quarter, but revenue on those sales was down 8%. Clearly this is better than losing those sales to Linux, but it still amounts to nearly a 10% price reduction on the sale price of Windows due to competition from Linux.

Now clearly this isn't going to drive Microsoft out of business any time soon, but it certainly worries investors. If future trends see Microsoft selling less software at lower prices then they'll want to see changes made.

Re:Oh, Dear

[symbolset]

They used to hide "right sizing" in the legions of temps.. but of course now it's better to shed the real employees and keep the temps!

Ya think? Having been a temp in this whole blue-badge, green-badge continuous reorganization scheme I can speak to this. In this environment the temp's got a lot of leverage. He can afford to call a turd a turd and not say it has potential. He can make fun of PHBs. He can do honest work and contribute without fear his out-of-scale achievements become the flag that gets him targeted for political career assassination. He can take bigger risks without fear of being labeled a 10%er. He has the power of laughter, and oh, what a power that is. He can do this because - what are they going to do? Fire him?

But this isn't Microsoft specific. I've never worked for them and I probably won't - they would have to pay enough more than I was worth to make me feel like I was exploiting them. Seinfeld money maybe. I would for what he got paid, and I think I could give them what they got for what they paid him.

They're just saying this to "look busy" so the stock market will still like them.

Agreed. Do you think anybody will notice their stock is worth half of what it was ten years ago today? Apple's good for 10x your money in the same period. For you 401K folks that's the leverage that investing in a growth company gives you. Companies that have achieved monopoly have no growth potential - the best they can hope for is graceful decline potentially (but rarely) followed by a bet-the company reinvention of process. This is going to surprise a lot of you dollar-cost-averaging investors, but betting that a company will survive the retirement of its founders is a very bad bet. If you start investing in a company at the beginning of your working life, and keep your money in that company throughout your careers, 95% of the time you'll lose it all because founders of companies don't have longer working lives than you do.

Would be Nice for Independant View

[geoffrobinson]

Of course the Linux guy will say Linux. And the Apple guy Apple. So on and so forth. And there is probably a mixture of truth to all that.

But it would be interesting to get that internal memo.

Comment removed

[account_deleted]

Comment removed based on user account deletion

Linux renaissance by Laid-off MS employees

[screenbert]

Making $4 Billion in one quarter isn't much a decline. Looks like layoffs were induced by greed, so that executives stocks options go up. It would be interesting to see if some of those 4000-5000 employees use linux as a platform for a technology startup.

On the bright side if I were laid-off I'd have plenty of time to juggle.

Re:Linux renaissance by Laid-off MS employees

[Lumpy]

THANK YOU....

Most large corporate layoffs are for greed reasons only. to make the books look a little better for next quarter. It's trendy right now and you wont be questioned if you do.. Look GM is dying! we can too!!!

There is a crapload of shady things going on right now in the business world. Look at every bit of it with a heavy dose of skepticism and never ever trust a company as far as you can physically throw it.

Re:I dunno

[houstonbofh]

I think most of their lost profits are from people negotiating lower prices because of the Linux alternative, not so much that people are actually choosing Linux.

From TFA... Actually the first question in TFA.

Q1 -- Jim, thank you for your support in talking with LinuxDevices today. Do you think it was really Linux that hurt Microsoft? Or was it the emergence of netbooks? XP seems to ship on most, but Microsoft isn't making much money selling XP for low-cost PCs [story], are they?

A1 -- When an OEM negotiates a price agreement with Microsoft, they now have a viable alternative. It changes the negotiating relationship. It's a combination of Linux, missteps by Microsoft, and not enabling Vista for a low-power, long battery-life device.

I wonder if you can be modded insightfull for "insights" from the article? No one reads them anyway...

Re:Missing factors

[JCSoRocks]

Not to mention the fact that if companies *did* start selling machines with their own flavors of Linux I'm sure they'd quickly spiral into garbage. Think of the crapware on budget PCs. Now imagine an entire OS bastardized, branded and sold to the highest bidder. I could see custom manufacturer Linux distros quickly becoming a total nightmare.

What about MS's role in it's own decline

[jhfry]

Microsoft isn't losing because of Linux, it's losing because of Microsoft.

Essentially, if MS dominated the industry by creating the BEST product, then they wouldn't have a problem. Their problem is simply that their target customer isn't willing to be abused any longer. That and the of years of abuse have pushed millions of victims to contribute to the creation and improvement of alternatives to Microsoft.

Re:What about MS's role in it's own decline

[ciaohound]

Exactly. They are reaping what they've sown with their Windows-for-everything strategy. That worked against Lotus, Borland, Netscape, etc... ten years ago. But where is the Windows iPod? The Windows iPhone? The Windows Android? Innovations are sidestepping Windows.

Of course, Microsoft has the technical ability to do so as well, but organizationally, that's like asking Detroit to make a small car.

Re:Missing factors

[jedidiah]

Linux doesn't need any marketshare in order to do damage to Microsoft.

Just the fact that it's out there as a bogeyman is enough.

The ressurection of XP on netbooks is a good enough demonstration of this effect.

netbook argument is nonsense

[cinnamon colbert]

i have been looking a lot at netbooks online, at best buy and at staples and microcneter, and it is hard to even find a linux netbook - I seriously doubt this has caused any significant harm to MS
But, be glad to see some actual sales data
Anyway, the whole idea that linux is better or cheaper then MS is not true for the avg user,

Linux can do even better

[bogaboga]

Yes, Linux marketed as a distro can do better. The good thing is that very soon, we'll have KDE with a business friendly license. What I would like Linux programmers to do is to get their act together and solve problems that continue to plague the Linux ecosystem.

These come to mind:

1: Multimedia. There are so many back-ends to choose from, each with problems of their own. The associated front-ends are even worse both in functionality and bloat.

2: Polish. It seams that by default, Linux distros are less polished by default. In fact, I can say they are ugly by default. This does not help.

3: Bloat. KDE is wonderful but suffers from bloat. GNOME is kind of OK, but it's interface looks ancient and lacks the functionality of modern systems.

My 2 cents.

Re:Linux can do even better

[timmarhy]

1. nonsense

2. eye candy sells, that fact that you don't get that is what's wrong with linux

3. KDE is bloated as hell - that's what overcomplication is. GNOME is also bloated IMHO, so many packages and dependancies it's insane. it also lacks modern features like a consistent clipboard.

Look at their books

[BlendieOfIndie]

Microsoft Revenue/Growth
Year Revenue %Growth
2005 39,788 -
2006 44,282 11%
2007 51,122 15%
2008 60,420 18%


Red Hat Revenue/Growth
Year Revenue %Growth
2005 196 -
2006 278 41%
2007 400 43%
2008 523 30%


Red Hat is growing much faster than Microsoft, but Microsoft has 115x more sales.

Re:Missing factors

[Jason Earl]

Linux's mere existence has always had a competitive influence on Microsoft. However, it wasn't until recently that Linux was truly a competitive threat as a desktop for end users. Heck, I've been using Linux on my desktop since 1995, but I haven't really believed it was a viable replacement for Windows for normal folk until fairly recently (and then only in fairly specific situations).

It's hard to argue that Linux doesn't represent a threat now, however. After all, Microsoft resurrected Windows XP and sold it at a steep discount as a specific reaction to Linux adoption on the low end. If Linux didn't Asus and the other netbook vendors wouldn't really have had any choice but to either spec out their netbooks to fit Vista, and sell them at a price point where Vista makes sense.

On a much broader scale Linux and Free Software have been limiting how much Microsoft can charge for software since its inception. This is most visible on the server end, where Linux has a great deal of traction, but it is also visible in areas like development tools, embedded software, etc. As Free Software becomes more visible as competitors to Windows and MS Office Microsoft is going to find it increasingly difficult to defend it's ridiculously high profit margins on these items. At which point Microsoft is likely to become just another software development company instead of the 800 pound gorilla that we all know and love.

The big picture

[westlake]

There are damn few companies in the tech sector that haven't announced lay-offs.

Microsoft isn't reporting billion dollar losses.

Microsoft is reporting a bare 2% growth in revenues, to $16.6 billion dollars in its second quarter.

Microsoft is debt free, with tens of billions in liquid reserves and Exxon-Mobil grade corporate credit.

The last I heard, OpenOffiice.org was down to 24 full time developers.

Sun is hurting.

There are others who have made big commitments to Linux and open source who are hurting.

Before the geek crows too loudly about Microsoft's "dilemma" he might usefully rate his own chances of survival.

Re:Linux had a head start

[jhfry]

Give me an example of what was alternatives that IBM ignored when it chose MS-DOS for the IBM PC. And why they were better (for the target market) than MS-DOS.

I can only think of one OS that was truely better at the time for personal computing, and that was OS-9 (not Mac OS-9)... but I'm not sure that it could have been ported to the Intel 8080 as it was written entirely in assembly and wasn't ported to any other processors until 2 years later in 1983 and not to Intel until 1989.

Sure there were tons of interesting things happening in the personal computing OS space in those days... but when IBM went shopping, there were not really that many choices that would have made good business sense. CP/M would have been the best choice, as it was the most popular... but they wouldn't sign the papers IBM required... hence the reason Gates bought QDOS (a CPM like OS) and renamed it MS-DOS in the first place.

So technically there was nothing for intel processors that was better, and the only os that made better business sense wouldn't sell... that left MS-DOS.

I will agree that MS could have greatly improved on MS-DOS and didn't, favoring compatibility over capability... but don't forget that tons of software of the time was proprietary so it didn't make sense to break compatibility to favor features.

I think if anything, it's IBM's fault for coming into the scene before a decent OS had been ported to intel processors. Hell QNX was only a year later and put DOS to shame... but in technology, it rarely pays to wait.