MESSAGE
| DATE | 2003-12-28 |
| FROM | Ruben I Safir
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| SUBJECT | Subject: [hangout] Re: The IT industry is shifting away from Microsoft
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The IT industry is shifting away from Microsoft
Comment In the beginning there was Microsoft. Then it exploded
By Charlie Demerjian: Sunday 28 December 2003, 11:31 EVERY SO often,
there is a big shift in an industry. The shifts are not usually visible
until long after they've happened, making you look back and say: "Oh
yeah, things were different back then".
We are experiencing a major IT industry shift right now, and if you know
where to look you can actually see it as it happens. This shift is all
about Microsoft and open source.
Until very recently, Microsoft owned everything in the personal computer
business, both low and high on the food chain. The low end was occupied
by Palm, the high end by Sun, IBM and others. In the vast soft middle,
there was Microsoft and only Microsoft.
Everyone who challenged it was bought out, cheated out of the technology
, or generally beaten into the ground with dirty tricks, by ruthless
competition, or on rare occasions, with a better product. Listing the
failures would consume more column inches than a person could read in a
year.
Netscape, Stac, Wordperfect, Novell, and others are among the notable
casualties. Those that technically survived are ghosts of their former
selves.
Just as the press proclaims the inability of anyone to challenge the
Redmond beast, control is slipping from Microsoft. As with any company
faced with a huge loss of market share, Microsoft is acting predictably,
pretending it is not happening, and putting on a smiley face when asked
about prospects. On the inside, Microsoft is as scared as hell.
One of the richest companies on earth, run by one of the richest people
on earth afraid? What can you mean?
Hung, Drawn and Quartered To put things in perspective, Microsoft has
always performed better each quarter than the one before. Whenever the
financial types settle on quarterly earnings, Microsoft always manages
to pull a few more cents per share out of their hat, and beat those
earnings. The collective bunch of jackals and worms that are known as
'Wall Street' sit slack jawed in amazement, and give half hearted golf
claps. Rinse and repeat every quarter, including the analysts
'amazement'.
How it does this is no trick. It has profit margins on its two major
products of over eighty per cent. The rest of the products, from
handhelds to MSN and the Xbox are all horrific money losers. Its
finances are so opaque and badly presented, that it can shuffle money
around from one part of the company to another without anyone noticing.
Make too much money one quarter? Stash it in the closet labeled
investments, or write off some losses. Not making the numbers? Cash in
some assets and make a 'profit'.
Overall, it has been able to show a smooth earnings curve, and surprise
on the upside every time it reports a quarter? Monopolies and almost no
cost to make your physical product other than R&D has itss advantages.
Corporations cry Linux About a year ago, things started to change. The
cries that Linux would dethrone Microsoft remained the same, but there
was a shift in the corporate reaction to those cries. CxOs started to
say 'tell me about it'. In a down economy, free is much cheaper than
hundreds of dollars, and infinitely more attractive. Linux started
gaining ground with real paying customers using it for real work in the
real world, really.
Up until then, Microsoft had simply ignored the tuxedoed threat. Then it
started reacting with the usual FUD, the Halloween memos, various white
papers and clumsily purchased studies. Somehow, people didn't buy the
fact that $1,000 a head was cheaper than free, and so Microsoft had to
move on to a different tactic. Since it couldn't buy the company that
produced Linux, the GPL prevented the usual embrace and extend, and
people had simply grown to hate Microsoft for all the pain they had been
caused over the years, the firm found itself in a bind. How do you
compete when all your dirty tricks are either inapplicable or fail, and
buckets of cash can't buy your way out of the hole you are in? Simple,
you compete on their terms.
Other than in the last six months, when was the last time Microsoft
lowered prices, or gave anything other than a trivial discount on
anything? Yeah, right, never. Faced with losing the home office market
to OpenOffice/StarOffice, the server side to Linux, databases to MySQL,
and the desktop to Linux in the not too distant future, what could it
do? It targeted price cuts at those who matter most, the early adopters
and other key segments.
The first of these cuts was aimed at MySQL, with the developer edition
of SQLServer getting the axe to the tune of about 80 per cent. Then it
started a slush fund to prevent high profile companies and organizations
from giving Linux that all important mindshare beachhead. Then it came
out with a 'student and teacher' version of Office. Hint to the
readership, if you don't want to pay $500 for office, the new version
doesn't make you prove you a student or a teacher like the last one.
Well, none of these tactics is working, and one of the reasons it isn't
going as well as Microsoft hoped is its own money grubbing product
activation scheme. Without starting the old debate about the cost of
pirated software, it is hard to argue against the fact that even with
the numbers it spouts off about piracy, Microsoft still clears about a
billion dollars a quarter or more. If it wasn't for piracy, the Gates
sprouts (little 1.0 and 2.0) could afford to be sent to a good school.
Cry for them. In its wisdom, Microsoft decided to squeeze the users a
little, and to its abject horror it began to realise that people were
willing to take the slightly less functionality of OpenOffice for the
$500 a machine discount. Who would have guessed that result? See foot,
see gun, see gun shoot foot.
The next winning strategy was to circle the wagons, and lock people in.
If you prevent other programs from working with your software, and make
your stuff fairly cheap, people will flock to it, right? Well, right to
a point, at least until you build up hatred and people have an
alternative.
Licensing 6.0, the new 'rent as you go, but do so at our sufferance' was
the catalyst here. When it proposed this scheme, people laughed
outright. When Microsoft said do it or pay the retail price, people
blinked, and a few cried monopoly. This is when people started to take
Linux seriously.
Defections, Defections When Microsoft set a deadline for licensing 6.0,
people balked. Adoption was less than the 100% it was counting on, so it
blinked and extended the deadline that wasn't capable of being extended.
People still didn't flock to the plan, so Microsoft turned the screws
and, um, blinked again. Once it was clear that customers weren't viewing
100% plus price increases as a benefit, and Microsoft was looking weaker
and weaker with each delay, it stopped delaying. Any reasonable observer
would chalk up losing one third of a customer base, and alienating it at
the same time, as an unmitigated disaster.
Microsoft touted this as a sign that people didn't truly understand the
generosity emanating from Redmond, so it sweetened the pot by offering
tidbits to the reluctant. That included training and other things, but
no price break. That was the sacred line that it would never cross. For
a bit. People still didn't flock back, and high profile clients started
to jump ship. What to do, what to do?
The answer was to head off the defections by offering massive discounts.
Send in the big names to woo the simple. Threaten behind the scenes. Do
anything it takes, and when Microsoft says anything, rest assured that
there are things none of us have thought of coming into play with the
subtlety of a sledgehammer.
The strange thing is that even this didn't work. People did the math.
With expensive lock-ins on one hand, and cheaper, more interoperable
software on the other, they started choosing the less expensive route.
Imagine that. The high profile defections started happening with more
and more regularity, and Redmond was almost out of tricks.
Some defections were headed off, like the Thai government, which pays
$36 for Office and Windows XP comes with a 95% discount if you compare
it to list. There are probably other similar deals elsewhere that we
have not heard about. For every one of the Microsoft victories, there
were two or three Linux wins. Then four or five. Now it is not even a
contest. High profile defections like cities, governments, and, gasp,
IBM, are just the tip of the iceberg, and almost everyone is looking at
the pioneers to see if the trail they are blazing is worth following.
If it turns out that these first few companies can make it, expect the
floodgates to open, and everyone to follow. The designed in security
flaws, that make Microsoft software insecurable, are only adding to the
misery. Every day that a company is down due to worms or viruses, it
starts re-evaluating Microsoft software. When bidding on the next round
of contracts, the memory of all night cleanups tends to weigh heavily on
the minds of many CIOs and CTOs.
The latest quarterly numbers showed something that hadn't happened
before -- flat Microsoft numbers. It blamed this on large corporations
who were skittish in the wake of the Blaster worm. But if you stop and
think about that, most companies are on Licensing 6.0 or other long term
contracts, so the income derived from them is steady. People who are
going to buy Microsoft products will do so, people who have jumped have
jumped. A large corporation does not delay purchases like this for a
quarter because of a security breach, they will have their licences run
out from under them, or they will just buy the software as planned and
sit on it if absolutely necessary. Something does not smell right with
this explanation.
If Microsoft can't pull off an upside surprise, something is very wrong.
It is now at the point where it must beat the street, or the illusion is
shattered, and that has this nasty effect on stock prices. If Microsoft
didn't meet expectations this quarter, it goes to show that it either
couldn't do it, or made a conscious decision not to.
Running low on Wiggle Room If Microsoft can't beat the numbers, it shows
that it is running low on wiggle room, the core customers are
negotiating hard, and Microsoft is giving way. Without billions to throw
at money losing products like XBox and MSN, can these properties
survive? If they can't, that would make a financially healthier
Microsoft, but would it still be Microsoft? Could it offer a complete
end to end solution if it found itself unable to control the internet?
Would it be able to fight the phone wars without being able to casually
sign off on nine digit losses? How long will the set top box world take
to make money?
The more troubling aspect for the company is if Microsoft decided to
report what is really happening. Wall Street is in a Microsoft fed la-la
land when it comes to numbers. The stock is absurdly high, and in
return, it is expected to do things in return. Once it stops doing those
things, it becomes a lot less valuable. And when that happens,
shareholders and the Street start asking all those nasty questions that
executives don't want to answer. If the stock plummets, those options
that Microsoft is famous for as employee incentives become much more
expensive, and morale goes down. In short, things get ugly.
For Microsoft to actively shift the company into this mode would signal
nothing less than a sea change, one that would bring the company a lot
of pain on purpose. I can't see anyone purposely doing this unless backs
are to the wall and there is no other way out. A much smarter way would
be to ease out of it over the course of a few years, and change the
company slowly. That way, you could still prep the analyst sheep, and
escape relatively intact.
If I have to guess, I would say that the competition is starting to
force Microsoft into a pricing war, and any moron can tell you a price
war against free is not a good thing. Don't believe me? Just go ask
Netscape. Oh how the worm turns. But price wars are destructive, and
will sink Microsoft faster than you can say "$50 billion in the bank".
Microsoft can afford to cut prices but after a while those $10 million
discounts start to add up. It just won't work when everyone knows the
simple truth of Linux.
The fact is, if you are negotiating with Microsoft, and you pull out a
SuSE or Redhat box, prices drop 25 per cent from the best deal you could
negotiate. Pull out a detailed ROI (return on investment) study, and
another 25 per cent drops off, miraculously. Want more? Tell Microsoft
the pilot phase of the trials went exceedingly well, and the Java
Desktop from Sun is looking really spectacular on the Gnome desktop
custom built for your enterprise, while training costs are almost nil.
It isn't hard to put the boot in to Microsoft again and again these days
-- being a Microsoft rep must be a tough job. And whatever it does,
people are still jumping ship.
Trusted Computing The problem is that Microsoft just isn't trusted,
questionable surveys aside. That knowledge is spreading up the executive
ranks. Microsoft has a habit of promising users things, but not
delivering.
Security is a good example. A few years ago, Microsoft promised to stop
coding XP and do a complete security audit and retraining. Everything
would be good after this, it said, trust us. People did. Blaster,
Nachia, and a host of others illustrate that Microsoft didn't make
anything close to a sincere effort.
So, what comes out of Redmond nowadays? Hot air and Ballmer dance videos
made on Macs. Monkey boy is funny to watch, but after an all night
patching stint with the CEO yelling at you, it loses its charm. Remember
that same Ballmer who said that Microsoft would not release a service
pack for Win2K because it would not be released until it was perfect?
How about that same security audit for XP that would erase the chances
of anything like Blaster ever happening? Anyone think the masses will
buy the line for the next release? The truth is they will, and Microsoft
knows it.
The phrase 'it will be fixed in six months, trust us' seems to have a
magic power when emanating from Microsoft. Every time someone big enough
comes to it with a list of complaints, it announces an initiative, comes
out with a slick Powerpoint presentation, half a dozen press releases, a
Gates speech, and several shiny things to distract people.
The fact remains that security has been getting worse every year since
Windows 95 was released. One hell of a track record don't you think? The
fact also is that for the first time, Microsoft revenue is flat, it has
competition, and it publicly blames security woes for the monetary loss.
The culture at Microsoft , however, prevents change. I was talking to a
high level person in charge of security at the Intel Developer Forum
last fall, and we chatted about what Microsoft could do to fix things.
He asked the right questions, and I told him the right answers, trust.
Plus, throw everything you have out and start again. He didn't get it.
No, more than that, he was impervious to the things I was saying to him,
the culture is so ingrained that the truth can't penetrate it. Microsoft
cannot fix the 'bugs' that lead to security problems because they are
not bugs, they are design choices. When faced with Java, Microsoft
reacted with ActiveX. That, it claimed, could do everything that Java
could not, because Java was in a 'sandbox', and programs could not get
out.
The fact remains that Microsoft's entire infrastructure is based on
fundamentally flawed designs, not buggy code. These designs can't be
changed.
To change them, Microsoft would have to dump all existing APIs and break
compatibility with everything up till now. If Microsoft does do this, it
will have the opportunity to fix the designs that plague its product
lineup.
I doubt it will. Even .Net, the new secure infrastructure, and built
with security in mind, lets you have access to the 'old ways'. Yes, you
are not supposed to, but people somehow do, and hackers will. Microsoft
and its customer are addicted to backwards compatibility in a way that
makes a heroin addict look silly.
And if Microsoft does change its ways, what incentive will you have to
stick with Microsoft? If you have to start over from scratch to build
your app in this new, secure Microsoft environment, will you pay the
hundreds or thousands of dollars to go the Microsoft route, or the $0 to
go with Linux?
Starting from Scratch Starting over from scratch nullifies the one
advantage that Microsoft has, complete code and a trained staff.
Migration and retraining features prominently in most Microsoft white
papers, and if it has to throw all that away, what chance does it have?
In light of the won't do and can't do, Microsoft sits there, and watches
its market share begin to erode. That's happening slowly at first, but
the snowball is rolling. A few people are starting to look up the hill
and notice this big thing barreling down at them, and some are bright
enough to step out of the way.
The big industry change is happening, and we are at the inflection
point. Watch closely people, and carefully read each and every press
release. If you can see the big picture, this is one shift that won't be
a surprise in hindsight. ยต
On 2003.12.28 22:45 Wendell Anderson wrote: > >
http://www.theinquirer.net/default.aspx?article=13350 > > > Folks! > >
This is a damning and very strong reasoning argument about > the present
and "potential" future involving Microsoft. > > I recommend copying and
distributing the article widely. > > Wendell > --
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