To maintain its developer ecosystem and protect its apps business, Microsoft has no choice but to loosen its grip on the Windows source code and drive down costs.
Suggest that Microsoft's Windows operating system will one day become open source, and knowledgeable observers will give you a baleful look--maybe even laugh in your face. "I had to chuckle," says Forrester Research analyst John Rymer, in response to my query on the subject. "No, I don't think Windows will ever become open source code." OK, so Windows will never become an open source project in the same vein as Linux, with 2,000 developers worldwide submitting code. Microsoft has enough trouble with its own developers submitting code, never mind all those outsiders. And I'll concede that some Windows source code probably will never see the light of day.
But people are wrong when they assume that Microsoft will never move Windows down the open source path. To neutralize the advantages of Linux and other open source competitors, Microsoft will have to make Windows more like them. If it doesn't, it risks losing the 6-million-plus developer base that's made the Windows platform great. Microsoft may not want to open up Windows to the world, but it will. Indeed, it must.
Microsoft cares about two things: Its lucrative software line, and the outside programmers who add value to its core platform with their own innovations. It's done a masterful job of cultivating that crowd, giving them tools, early code releases, and information on upcoming features to keep them engaged. It can't afford to lose them.
Yet Microsoft is in a quandary over its product line. The company's Windows client revenue, including that from Windows Vista, declined 8% in the quarter ended Dec. 31, and Vista has become a marketing albatross, with a reputation as an intrusive, underperforming OS. The answer, however, isn't Windows 7, which is more a Vista service pack than new platform. Microsoft's challenges run deeper than that, and maintaining its Windows revenue stream isn't the win-at-all-cost endgame.
Windows XP reportedly brings in about $34 each time it's loaded on a new PC shipped by a manufacturer, the way most people get a new copy. Microsoft Office, on the other hand, brings in four to 12 times as much, depending on which version of the suite comes bundled with a PC.
Not only do Office and related applications, like Publisher and Office Mobile, generate a torrent of license revenue, they tie into Microsoft's server applications. SharePoint starts at $4,350, when discounted, according to NexTag, the online service that seeks the lowest software prices available.
In other words, Windows may be what established Microsoft, but Windows can't sustain the company. Applications are what give it a competitive edge--and what generate billions of dollars in pure profit.
Microsoft's applications are vulnerable, as well. The proprietary file formats that have protected Microsoft apps have been offset by Office Open XML, the default format for Office 2007 and now an international standard.
Mobile phones are the PCs of the future, Gates says, referring to Microsoft as the underdog in that market.
So for the first time there are no real technical barriers preventing other vendors from playing in the end-user applications market, and competitors are nipping away. Office alternatives include IBM Lotus Symphony, Sun Microsystems Star Office and the related Open Office open source code project, Google Docs, Yahoo's Zimbra open source apps, and Zoho.
Will enterprises take those offerings seriously? For the first time, the Burton Group is advising clients who ask how to save money in a recession to "envision a split scenario" in which they deploy Office on Windows for power users and Google Apps for others. "Such a split could significantly reduce licensing costs without seriously impacting productivity," says Burton analyst Guy Creese.
Both startups and major manufacturers are beginning to offer Linux PCs with open source application suites. They include Hewlett-Packard's HP Linux dc 5850 and Dell's Mini 9 with Ubuntu Linux. Eventually, somebody is going get the functionality and the price point right.
To stay competitive and encourage the continued growth of its application ecosystem, Microsoft will have to make Windows a near-zero cost equivalent. Not that Microsoft will come to this decision easily. It will be a last-ditch, deprive-the-enemy-of-his-major-weapon adjustment. Microsoft CEO Steve Ballmer, who once railed against open source as being a form of "cancer," would probably swear that he won't ever do it. Perhaps his successor will. (I reached out to Microsoft to talk about open source Windows, but it seems this is a subject it would rather avoid.)
Remember that Sun's Scott McNealy swore on Wall Street he would never allow Solaris to become open source, and we know the end to that story.
Microsoft will be spurred to do so by more and more defections of both its application customers and the third-party developers who surround Windows with much of its added value. In the long run, developer defections pose a greater strategic risk to Microsoft than the loss of revenue posed by a free Windows. Developers prefer open source because it gives them independence, flexibility, and lower cost.
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Virtualization is also a driver. Windows used to go out the door on every x86 instruction set computer that shipped, and it still does on most. But Dell, Fujitsu Siemens, HP, IBM, and NEC all ship servers with x86 virtualization, often VMware's ESX, built in. A hypervisor talks directly to the hardware in lieu of the operating system. It lifts the OS up a layer and assigns it the task of communicating with the application. Windows used to talk directly to the hardware; in virtualized environments, it just hands off requests for hardware services to the hypervisor.
This doesn't sound like a big change, but the stranglehold Windows once held on the hardware layer has been loosened. The hypervisor doesn't care what operating system is running above it. It could be Windows, NetWare, Solaris 10, BeOS, or whatever. Now a business user can run applications written for Windows, Linux, Apple Mac OS, or Solaris on the same machine. As virtualization spreads, users are likely to become less Windows-centric.