Why Microsoft fears open source more than other proprietary vendors do

A thought hit me this morning while I was reading through Microsoft's latest garbage-fodder (also known as "research") on OOXML and Sharepoint. Here is the world's largest software company taking potshots at open source, which maybe affects 0.001% of its revenues today. If that.

Now look at Oracle, SAP, IBM, etc. You won't find a single other company making a concerted effort to fight open source. Not a one. Larry Ellison (Oracle) says open source is not something to be feared, but rather something "to be explained." They clearly see open source as something to work with, and sometimes something to work through, but not something to destroy.

Sure, these and other proprietary-software companies occasionally dip into mudslinging against open source, but they don't regularly buy analysts, set up anti-open source sites, rattle patent sabres, and generally insist on making a fetish out of open source's demise.

Just Microsoft. Why?

(Credit: Forrester)

I think it has a lot to do with how Microsoft chooses to make money. Microsoft, more than any other vendor listed (and many others that could be, like Autodesk, HP, Sybase, Salesforce.com, etc.), sells packaged software.

It relies, more than most companies, on a big, upfront license fee. At most vendors, such license fees barely pay for the cost of selling the product, causing them to rely on ongoing maintenance fees for their profits. So, whereas Oracle's revenue stream looks not hugely dissimilar from an open-source revenue stream, Microsoft's looks vastly different.

In short, Microsoft's business and revenue model is threatened by open source much more than most proprietary software businesses.

This is also true because Microsoft can't claim, as could SAP, that its software (or, rather, the services around it) is too complex to be easily commoditized by open source. Indeed, Microsoft's business has been commoditizing markets with decent, lower-cost software.

Microsoft's "house" is built on sand. The very factors that drove its success - easy-to-use, low-cost, integration between components - are the same things driving open source into the enterprise. Except that instead of lower cost, open source is free. Instead of integration of various components within the Microsoft-only ecosystem, open source's open standards and open source code makes integration between disparate components - owned by different companies and communities - much easier than in the traditional proprietary world. And new open-source applications, operating systems, and middleware are heavily focused on customer value - including ease-of-use - which is challenging Microsoft on that front, as well.

Microsoft showed the way to beat the incumbent proprietary vendors, and its strategies are now being used against it by the open-source world. Except that this time, there's one more huge value that Microsoft can never provide:

Freedom. Freedom from lock-in. Freedom to integrate and tweak and fiddle to make software work for the customer, because the vendors are no longer selling software. They're selling service to make that software sing for the customer.

Microsoft can't compete with that, which is why it's running scared. And rightfully so.

[mcintosa]

on its own sword

TCO is not Windows largest challenge; reliability and security loom far larger and darker. These are the other side of the double-edged sword that MS sucessfully used to fend off competitors such as Digital Research, Netscape, GeoWorks, and on, and on. By integrating the operating system with the desktop manager with the internet browser with whatever else, MS created a megalithic structure that tremendously raised the competitive bar. A newcomer could not just try to compete in one tiny area of the operating environment business; a competitor would have to offer an alternative to all or nothing. However, as we have come to expect more out of our operating environments, complexity has increased, which makes reliability and security inversely-related to an exponential function of the code volume. We have reached the point where having security or reliability with MS' megalith is effectively impossible. And no amount of bought or biased studies can honestly claim otherwise. The integration weapon that MS' effectively used to create museum exhibits of its failed competitors looks to be in a position to potentially make an exhibit of Windows.

[deshpaaa]

rightly said

I second you. The easy to use and integrated solution ( with a lock-in) is Microsoft strong point. We at SAP Open Source Research work to support Open Source and look at it as a new business opportunity instead of a threat.

[tjhanson]

Microsoft is facing an impossible hurdle.

Here's the problem for Microsoft:

It is an economic truism that monopolies are inherently
unstable. The business plan of a monopolist is inevitably
destroyed by what it must do to retain its monopoly.

And retain its monopoly it must, because without the
monopoly its sales and margins would soon drop and costs
rise to those of any other technology company. In
computers that is the lesson IBM learned with some
difficulty.

The culture at Microsoft would have to perform a
turnaround, as AT&T learned when it lost its state
sponsored monopoly. Whether it would successfully
accomplish such a change in direction is subject to
speculation.

Others must compete with each other and try to
differentiate their products from one another. Only
Microsoft can compete only with the last versions of its
own products. Other companies, their real innovations
increasingly stifled by the need to cater to Microsoft's
business plan, are already creating pressure for change.

Sooner or later Microsoft will lose its monopoly. It can
only stave off the now stifled forces of the open
marketplace for a limited time. Already much of the
company's resources are expended on monopoly maintenence,
in the form of enforced incompatibility with everyone
else's products, expensive litigation,
redundant "upgrades" to keep the revenue stream moving,
and the other trappings of all monopolists.

Open Source advocates, with the closely allied Open
Document people, are the next generation of competitors.
Microsoft was able to kill its proprietary rivals, but the
Open Source / Document folks are the future, morphed from
their old proprietary roots to develop a plan around that
world altogether. They learned from the Unix experience,
one of the most bitter feuds in computing. They are the
work-around to the problem of Microsoft. I believe they
will eventually drain the swamp.

[Matt Asay]

I'd love to hear more about SAP's open source work

@deshpaa: Can you email me? I'd enjoy learning more about what SAP is doing around open source. Maybe we could profile it here?