For years, Microsoft had it easy. The two busiest groups within the software behemoth were the accountants, adding up all the billions in profits, and the CD/DVD burning team, which simply had to burn more copies of Windows and Office to keep up with demand.
Today, life is a little less rosy for Microsoft, as it calls out in its recent 10-K filing with the Securities and Exchange Commission. As TechFlash highlights, Google Android is now called out by Microsoft as a competitor, as are Apple, Opera, and Google in browsers, whereas only Mozilla was deemed worthy of Microsoft's competitive glare in 2008.
Even more interesting to me, however, is Microsoft's acknowledgment of its increasing competition with Red Hat, Canonical (Ubuntu), and other open-source companies given the different business models these companies use to undermine Microsoft. Yes, Red Hat has made Microsoft's hit list for years, and it has also called out open source as a threat, but there's a far greater variety of open-source threats for it to worry about now.
Accordingly, Microsoft's annual report for its fiscal year 2009 reads like open-source Whac-A-Mole.
Microsoft highlights its 'desktop' competitors...
Client faces strong competition from well-established companies with differing approaches to the PC market. Competing commercial software products, including variants of Unix, are supplied by competitors such as Apple, Canonical, and Red Hat. Apple takes an integrated approach to the PC experience and has made inroads in share, particularly in the U.S. and in the consumer segment. The Linux operating system, which is also derived from Unix and is available without payment under a General Public License, has gained some acceptance, especially in emerging markets, as competitive pressures lead OEMs to reduce costs and new, lower-price PC form-factors gain adoption. Partners such as Hewlett-Packard and Intel have been actively working with alternative Linux-based operating systems.
The Windows operating system also faces competition from alternative platforms and new devices that may reduce consumer demand for traditional PCs. Competitors such as Apple, Google, Mozilla, and Opera Software Company offer software that competes with the Internet Explorer Web browsing capabilities of Windows products. User and usage volumes on mobile devices are increasing around the world relative to the PC. OEMs have been working to make the Google Android mobile operating system more compatible with small form-factor PCs or netbooks.
...and server competitors...
Our server operating system products face intense competition from a wide variety of server operating systems and server applications, offered by companies with a variety of market approaches....Nearly all computer manufacturers offer server hardware for the Linux operating system and many contribute to Linux operating system development. The competitive position of Linux has also benefited from the large number of compatible applications now produced by many leading commercial and non-commercial software developers. A number of companies supply versions of Linux, including Novell and Red Hat....
Our Web application platform software competes with open source software such as Apache, Linux, MySQL, and PHP, and we compete against Java middleware such as Geronimo, JBoss, and Spring Framework.
...and even office productivity application competitors:
Competitors to the Microsoft Office system include many software application vendors such as Adobe, Apple, Corel, Google, IBM, Novell, Oracle, Red Hat, Zoho, and local application developers in Asia and Europe....The OpenOffice.org project provides a freely downloadable cross-platform application that also has been adapted by various commercial software vendors to sell under their brands, including IBM, Novell, Red Hat, and Sun Microsystems.
One should assume that Microsoft exaggerates the impact of competition in order to stave off further antitrust inquiries, but it's telling that it calls out so much open-source competition for its broad product portfolio.
Of course, open source is also increasingly a tool used by Microsoft to distribute and develop software. Microsoft must choose whether to be a friend or foe to open source, especially as it seeks to build its next billion-dollar businesses.
But given that Microsoft opts to call out the fact that "Certain 'open source' software business models challenge our license-based software model" and that "To the extent open source software gains increasing market acceptance, our sales, revenue, and operating margins may decline," it seems that Microsoft is preoccupied with open source as a threat, rather than as an opportunity. That's unfortunate.
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