How Microsoft will compete with 'free'

Guest post: Jean-Louis Gass?e explains how Microsoft's future business model will borrow from both Apple and Google to compete with the free world of software. The essay was originally posted on Monday Note.

Jean-Louis Gass?e

(Credit: Dan Farber)

How do you compete with free? That's the question Steve Ballmer, Microsoft's CEO, is trying to answer every morning when he goes to work. On the server software side, Windows Server is doing well, especially with the Exchange e-mail server and the unheralded but very good collaboration server, SharePoint. These products have matured, they're relatively easy to set up and manage by IT organizations. The Exchange component is a spectacular success: it manages e-mail, contacts, calendars for hundreds of thousands of organizations all over the world. Even Apple finally embraced Exchange: the iPhone now syncs well with Microsoft's server and the next version of OS X promises "native" Exchange support. In plainer English: Apple's Mail, Address Book and iCal programs, for example, will sync with Exchange "out-of-the-box" just like the iPhone does. (This will be a relief to suffering Entourage users. Entourage is Microsoft's own Outlook sibling on the Mac, but it is a poor relative and lacks Windows' Outlook depth and polish.) Seeing that Windows Server generated more than $20 billion last year, one is tempted to think everything is going swimmingly.

Unix is the problem or, rather, the free Open Source implementations of its function set called Linux and FreeBSD, to name the best-known variants. While Windows Server and Exchange still reign for many Enterprise applications, tens of millions of Web sites run on Linux of FreeBSD software. Further, the Open Source nature of such software encourages sophisticated users to modify the operating system to fit their specific hardware configurations or applications requirements. For example, Google designs and manufactures (!) its own servers and customizes the Open Source OS they run. There's even a rumor they "roll their own" 10-gigabit Ethernet switches but I don't know vouch for that one. In any event, imagine how much the Google account would be worth to Microsoft if the Mountain View company used Windows Server? Knowledgeable readers will immediately object: Google running Windows Server isn't realistic. Not for price reasons but because Microsoft's server software isn't technically suitable for large "server farms" such as Google's. True. It'll be interesting to look at what Microsoft uses for its own Live cloud. In the past, Microsoft has had to resort to "other" server software for applications such as Hotmail. But, "scalability issues" (the ability to grow to serve very large server farms) aside, Microsoft is losing against free server software for the millions of simpler Web servers sprouting all over the world. And, as Linux and its cousins mature, they will inevitably make inroads in Enterprise applications where Microsoft still leads. Open Source competitors to Exchange do exist, they're not yet a strong threat but, if they keep improving, they will erode Microsoft very juicy server business.

On the desktop, Linux is trouble again, but much less so than in server farms. For consumers, as opposed to technically versed sysadmins, ease of use is still a strong plus for Windows. I bought two identical Asus EeePC netbooks, one running Windows, the other a Linux distribution. Windows is still much easier to use and update, Linux is still a little rough on normal humans. One example out of many glitches: the version I used didn't remember Wi-Fi access points and passwords. I had to re-enter everything each time I turned the machine on. This type of problem has prevented Linux from gaining much ground on the desktop.

But this could change: the success of netbooks, their large unit volumes could encourage a manufacturer such as Asus, Acer or Lenovo to invest in the needed polish to make a Linux-based netbook as easy to use as a PC or Mac -- or close enough at a much lower price. And the name, netbook, reminds us it might not need today's (or is it yesterday's?) full suite of robust desktop applications to succeed--it will run applications on/from the Cloud. Imagine a Google netbook.

Lastly, smartphones. Ballmer tries to change the subject by suggesting Apple ought to license its iPhone OS as opposed to keeping it all to itself. Let's skip over Microsoft's proprietary Xbox and Zune software and, perhaps, the upcoming Danger smartphone. Danger, the maker of the Sidekick PDA, is the company Microsoft bought earlier this year,. Microsoft has been selling Windows Mobile licenses for close to eight years now. In the licensing business, the iPhone isn't the real competition, Android is. How do you compete with a free smartphone OS, and a good one at that, which is supported by Google Cloud applications?

My guess is Steve Ballmer is working on a combined answer, one that is sketched before our very eyes already. Microsoft's Live services are but a rehearsal for a much bigger act, Microsoft's Cloud OS, sometimes called Strata. And, based on Microsoft's own Cloud services, we'll see a Danger-based smartphone, as proprietary as the Xbox and the iPod competitor Zune. Put another way, Microsoft's future business model will borrow from Apple and Google, it will have two components: proprietary devices and "universal" Cloud services. And like its models, it will attempt to extract extra profits by nicely tying both components together. For example: iPods are tied to the iTunes service, Android phones might (we don't know yet) better enjoy Google applications.

Interesting times ahead.

Jean-Louis Gass?e is a general partner at Allegis Capital. Prior to his venture capital career he founded Be, Inc., which was sold to Palm in 2001. Gass?e also held several positions at Apple Computer. He started Apple France in 1981, and in 1985 became president of the Apple Products Division. Earlier in his career Gass?e as worked at Data General, Exxon Office Systems and Hewlett-Packard.

[ewelch]

Gassee? The guy who almost help drive Apple into the ground?

[jpmays]

Forget Microsoft and Gassee! Let's talk about the poor writing! Did you see all the typos and bad grammar? Get real CNet... you need to have someone proofread these articles before publishing them... or maybe that isn't important to you guys anymore!

[cmpbllman9]

Quality is going to crap because CBS is calling the shots now.

[anythingbutmicrosoft]

Even if Microsoft gave me server/client for free it is still more expensive when you factor in the cost of ownership. i.e. I use Kerio on Linux for 5,000 users. It runs happily on 2 P4 servers, even supports Outlook with a plugin for those that insist on using LookOut. If the server dies I can install and restore it elsewhere in an hour. Broken mailboxes never took more than 5 minutes to fix, both times it happened in the last 3 years. No (Virus) Exchange admin can claim near zero downtime with 5k users like non-Microsoft admins can. Ever. And...how many BEEFY servers do you need for 5k users? 5, 10, more? Microsoft would have to pay me as much as $20,000 a year to cover the extra expenses to switch.

[rapier1]

How much did your Kerio license cost you? Just curious.

[MaLvaDo39]

iPods are NOT tied to iTunes services. With that statement, Gassee loses credibility.

My iPod has tons of music from my CD collection, Amazon mp3s, and from iTunes. It's a healthy mix but the iTunes portion is definitely avoidable.

[iertry]

there are other sync options available. You don't need to use iTunes, (MediaMonkey 3, Amarok, gtkPod) but if you want a half decent sync that syncs with the latest iPods' you should use iTunes.

[coryschulz]

Ugh.... Steve Ballmer and MS are such a head ache. So glad I have OS X.

[D3vildog699]

Must be nice to have Father Jobs heard you around.

[bobtubnj]

I don't know what version of the eeePC you are using, but I have no problem with the unit automatically logging onto the preferred wifi system at boot up( the version I have uses Xandros, not exactly my favourite flavour of Linux, but the drivers are set up to make it easy with the eeePC hardware). I also have another eeePC I set up with Ubuntu, which works just fine, my wife uses it for email and typing ( small hands are very helpful here!). I set up our office with a server and multple workstations using Ubuntu server at minimal cost. Windows would have cost me a fortune. We all use the Open Office suite, again at no cost, Microsoft office would have cost a bundle. I plan to buy an Android based phone as soon as the bugs are ironed out a bit more. I think Ballmer may have to work hard to beat Linux!! ;-)

Bobby B.

[professionaladventurer]

I have a multi location business, I am the owner. We use a combination on Open Office, Google App's on OS X with some web apps I wrote in PERL. There is no way I would try to do this with M$. I had a background as an IT manager before I opened my own (none technology related) business.

[wolivere]

Boy there are so many IT managers out there.

[yobiker]

My case is different, the driver for my wireless card for Ubuntu, PClinux, or others, works like a dream, but with Windows XP does not work so well. I have several machines, with different processors and chipsets, Intels, AMD, and Via. It's just to get used to it, Linux to me is easier people are too intoxicated with Windows, and takes a while, make the switch.

[illyakonnoff]

No google didn't start as a monopolysoft did, even in computational years.

Oh you mean the other fellow 'dillinger' who 'has the name' 90%monopolysoft to 'nitpick'; I guess monolpysoft was at the right place at the right time for decades, coincidence.

.net, .cloud 9*%.......

[wolivere]

I spent a weekend trying to build a ubuntu server on a Tyan Dlun thunder 100 with an Adaptect 1100AC raid adapter only to find out it was not compatible with Linux.

So I ended up installing server 2003, which accepted the NT4 drivers that adaptec supplied. Sure its an old server but it worked.

[illyakonnoff]

No google didn't start as monopolysoft did, even in computational years.

Oh you mean the other fellow 'dillinger' who 'has the name' 90%monopolysoft to 'nitpick'; I guess monolpysoft was at the right place at the right time for decades, coincidence.

.net, .cloud 9*%.......

[MarkyGoldstein]

Yes, the world is definitely changing and I guess all those listed except Microsoft will win: Apple, Linux, Google... hehe, why not? Didn't we pay our bills already?

[wolivere]

Last I checked the MS monopoly on the desktop increased last year, as did the server side. Apple increased slightly 6%- 8% but interesting enough it seams 54% of those users spend more time surfing with XP in boot camp then in OSX.

Linux has lost ground on both desktop and server side. Google is doing well, granted. But competition is good.

What else is intresting, Microsoft has sold more new licenses *not upgrades* of Vista this year then the total Mac install base.

[Leechman]

Sharepoint isn't a "good" server. It's a ******* horrible server. It's like they looked at the whole "wiki" concept and decided to see just how badly they could screw it up while still having something that was vaguely wiki-like.

If you're considering Sharepoint, try Mediawiki instead.

[Bruceother]

Jean-Louis you need to try Ubuntu-eee, Linux designed especially for the Asus Eee pc. I have one running a dual boot with windows. The Linux runs rings around Windows and is VERY easy to setup and use. Comes with all the bells and whistles that windows doesn't and takes up less than 2GB of that small solid state hard drive.
There is a Ubuntu Desktop version 8 that is great for larger desktops.

[Penguinisto]

SharePoint? "easy to set up"!? BWAHAHAHAHAHAHAHAHAA! OMF... ROTFLMAO!

Yeah, sure - easy to set up. Liars... I can set up a decent high-traffic multi-thousand-user non-SharePoint Wiki/CMS servers server in less than a day - and it doesn't require a minimum of two servers (three if you want it to hold up under the loads I deal with), a pricey MS SQL license, and six AD accounts (including a few with some rather risky security privileges). SharePoint requires all of that AND someone to spend at least half their workday managing the stupid thing.

SharePoint is a friggin' mess. It's a wreck. It's a perfect example of what happens when you take MSFT's OS design team and tell them to write a CMS service... bloated, overly-complex, and a right PITA to administer. I won't even start on the overly-heavy resource requirements it demands just to run itself.

Now contrast that with MediaWiki, or TikiWiki, Drupal, or one of hundreds of $0.00 cost alternatives out there that are drop-easy to install, drop-easy to run, look far nicer, and are far, far more flexible and useful.

--

Exchange, okay - it's still a PITA, but at least it has features. OTOH, you pay out the nose for the privilege. Even if you do external hosting of it (that is, pay someone else to run it), you get to pay through the nose. Also, Exchange is the only mail system that demands to store all its crap in a database instead of in easily-accessible flat files. If you store more than 72GB of stuff (my corp sits at around 45GB, and we're not even 20% hired-up yet), you'd better be prepared to really shell out the ducats for the thing (that is, you have to buy an Exchange Enterprise license and CALs...

That's one hell of an expensive little calendar/mail server rig-up...

*sigh*... if only there weren't so many stupid C*O's in the world...

/P

[CBattery]

Another day, another 'How will MS compete with free' story. These have been going around for what, a decade, yet 'free' is no better off now than it was then. There's much more than purchase price in the cost of a solution, that's why even at thousands of dollars the MS solutions continue to beat 'free' day after day after day.

And iPods ARE tied to iTunes services. You can't use iTunes with any other device than an iPod.

[ballmerisanape]

so that means iTunes it tied to the iPod.. not the iPod is tied to iTunes....

[gazoochow]

"iPods ARE tied to iTunes services"
This statement is factually incorrect.
I have an iPod. I have never signed up with iTunes, nor will I ever do so. I never bought music through iTunes, nor will I never do so. My iPod is tied to iTunes in absolutely no way whatsoever.

"You can't use iTunes with any other device than an iPod."

That means that iTunes is tied to the iPod, which is a completely different thing.

[AnthonyNYC]

This all sounds confusing, when people say iTunes, do they mean the iTunes music store?
Because you can't load music into an ipod without using iTunes, even if it is your own cd, you need to load it with iTunes.
And you can use iTunes to play and buy music on a PC without ever owning an ipod, so iTunes is not tied to the ipod. You can also burn cd's with music purchased on the iTunes Music store and play them in any cd player.
So it definitely isn't tied to just ipods, you just can't use other mp3 players with it. There is a difference.

[ppgreat]

As a CIO, network executive, IT professional, whatever... you are doing yourself, your company, and your clients a huge disservice by not investigating alternatives to costly Microsoft solutions.

[starflyer88]

CNET?? *** is up with banner ads that cover 25% of the article? with no way to close other than clicking on them? I'm sure that gets your click-through revenue up, but will certainly drive away readers.

[myles taylor]

These have only popped up for me if I was inactive for more than x amount of minutes. There is a little close button on the top right. I'm not sure what you're talking about.

[ppgreat]

"How Microsoft will compete with 'free'"

It can't. It won't.

Since MS cannot break away from its business model of protecting its monopoly, it will continue its slow slide into irrelevance.

[jessiethe3rd]

I see all the death marchers of Microsoft's "fate" are stepping up to blabber as usual. Informative article - the pieces of the puzzle are there and it seems like you have a firm grasp on what very well may be happening. I always find it interesting when you see people typing up comments about how they lead some large organization and they use everything but Microsoft. I find it equally as interesting how the same manager is running multiple different platforms and all these best of breed applications... in the mean time IT is growing considerably and operational costs are sky rocketing. Standardization saves organizations money - this is Microsoft's unique proposition. While you kick and screen that Microsoft applications cost money you are spending ever increasing money in human capital. Sounds pretty "anti-IT" to me. The goal of IT should be to #1 support the business by bringing creative solutions to the table while keeping operational costs down. Employing more people to support your mostly disjointed disparent systems will net you only one thing in this new business paradme these days... no job.

Like it or not most organizations see this value and have capitalized approperiately. While the haters are punching holes in Microsoft's individual products they do not seem to see the complete picture. Pinpoint on the next issue you have with one applicaitons - Microsoft brings a more compelling story to a CIO/COO/CFO with the money and investment ot back their game.

[chizy2]

Quote: One example out of many glitches: the version I used didn't remember Wi-Fi access points and passwords. I had to re-enter everything each time I turned the machine on. This type of problem has prevented Linux from gaining much ground on the desktop.

This is called security, something that microsoft lacks a lot of. And SuSe and RedHat that I am using remembers the wifi spots ok for me. I would rather enter in the passwords every time, rather than chance someone else getting on my PC and getting into my accounts. How can they compete - drop their prices down to something that the normal person and small business can afford.

[danielszabo1981]

Articles like these really detract from what was once a great site. For your ails, keep up on your tech news with this decent tech news site:

http://arstechnica.com/news.ars