February 14, 2000 11:20 AM PST

Linux poses increasing threat to Windows 2000

Linux and the Internet have changed the rules of the game for Microsoft.

While the Windows 2000 operating system may improve on earlier iterations of Windows, its official unveiling this week comes at a time when other competitive forces pose unprecedented challenges for Microsoft.

Although delays in the Linux rising release of Windows 2000 have allowed the company to test and improve its software, the extra time has also given other firms the opportunity to make their own mark in the lucrative market for operating systems.

Linux, for instance, has altered the assumption that Microsoft operating systems will be the de facto choice for low-end servers. At the same time, Sun Microsystems has strengthened its position in the market as the dominant choice for servers to power corporate sites.

But Microsoft is no weakling that shrinks from a challenge. Most agree that Windows 2000, which comes in four different versions to suit everything from laptops to servers, has strong prospects in the corporate market and will help maintain Microsoft?s powerful position in the operating system space.

The software giant has argued that Windows 2000 is a more mature system than Linux, less expensive than Sun's Solaris operating system and more powerful than the Windows NT 4 it will replace, Microsoft spokesman Aubrey Edwards said.

Chief financial officer John Connors went so far as to call it a "bet-the-ranch" project, the biggest software development challenge in the company's history.

Revenue lags Cultural factors, more than anything else, could be a major obstacle in Microsoft's effort to push its competitors aside as it moves deeper into the computing infrastructure of big business. In other words, just because people can move to it doesn't mean they will.

"In the next five years, Windows NT will be capable of running 95 percent of computing tasks. But that doesn't mean 95 percent of the world is going to use NT technology," said Gartner Group analyst Michael Gartenberg.

Dell Computer?s latest moves illustrate how Microsoft is strong but not unopposed in the operating system market. Dell, once among the most tightly wedded to Microsoft's products and a company proud of how in tune it is with market demand, has begun what chief executive Michael Dell termed "a major embrace of Linux" during a conference call last week with analysts.

Dell said he believes Linux will be popular with Internet service providers and small businesses. In 1999, Dell invested in two companies that sell Linux, TurboLinux and market leader Red Hat. What?s more, after Intel's new Itanium ships later this year, Dell plans to offer either Sun's or IBM's version of Unix, the company has said.

On the other hand, the CEO also told analysts he was pleased with the boost Windows 2000 will provide to Dell's efforts to sell more servers.

"Windows 2000 is certainly going to continue the acceleration of the server opportunity for us," he said. He added that internal tests showed a performance increase in some instances of 22 percent vs. Windows NT on the same hardware.

International Data Corp. (IDC) analyst Dan Kusnetzky believes Windows 2000 and its successors have a strong future even though his company's studies have shown Linux moving into second place behind Windows in the number of copies shipped in 1999.

The move happened two or three years before IDC expected.

"At this point, Windows NT is the leading server operating environment. We are expecting by the end of our forecast period, 2003, Windows NT (and its sequels) will have moved from being the leading operating environment to the dominant operating environment," he said.

In IDC's methodology, that means Windows 2000 and its successors will have more than twice the market share of the nearest competitor. Still, during all this time, Linux, which costs far less, will continue to grow.

Microsoft's Edwards questioned IDC's numbers. "That's a lot of licenses. It's hard to find large reference customers who have a lot of Linux."

Just as Microsoft had to retool its desktop operating system to adjust to how people wanted to browse the Net, it's now dealing with another round of changes that have established Sun as an authority on the Internet.

There is a belief in the industry that new Net firms should use products from the "four horsemen," said Illuminata analyst Jonathan Eunice. The leaders include Sun Microsystems for computers and operating systems, Cisco for the network routers, Oracle for databases and EMC for storage systems that house data.

To underline this, Merrill Lynch financial analyst Steve Milunovich is one analyst who believes Sun has a comfortable lead over Microsoft.

"We think NT could be a problem for Sun in two to four years. Until then, don't worry, be happy," he wrote in a recent report.

But much of the incentive to go with these four companies is mere peer pressure, Eunice said. "You don't want to be dismissed because you're different from the pack," he said. But Dell's Web site, based chiefly on Windows NT and 2000 servers, runs well under weighty demands, as does a well-executed site Hewlett-Packard uses to help train its business partners, Eunice said.

Moreover, Sun's Solaris doesn't do as well as other versions of Unix from HP, IBM and Compaq when it comes to building systems that are available around the clock, Eunice said.

Microsoft believes Windows Windows 2000: The next generation is not only ready for the Net, it's already there. It's used on serious servers such as e-commerce sites that require an encryption technique called Secure Sockets Layer (SSL) often used to protect credit cards. A study by security services firm Netcraft shows that 45 percent of servers using SSL are running Windows, well ahead of the next-place 14 percent earned by Solaris, Edwards said.

Still, Windows is weak when it comes to housing large databases that are heavily used, according to Gartenberg. It can't support the heavy transaction loads as well as Unix, he said.

Both Linux and Microsoft have to deal with cultural barriers. Red Hat chairman Bob Young stepped down from the position of chief executive in part so he could spend more time preaching the merits of the philosophy of "open-source" programming used by Linux. Linux makes its original programming instructions available for any programmer to modify and redistribute.

That openness means customers aren't as beholden to the operating system seller when it comes to writing software or fixing bugs--but it also leads to a profusion of patches and updates from all across the Internet.

Yet big companies like CNET's
Linux Centerdealing with a predictable partner, Eunice said, as standardization lowers costs by making necessities such as support personnel easier to find.

That's one problem Linux faces, and it's also behind "why they love Red Hat emerging as the one anointed source of Linux. It sets a standard," Eunice said.

Young acknowledged the chaotic Linux environment but argued that Linux also lets customers have control over their software. "Windows 2000 is more proprietary binary-only technology. Your supplier gains control over the systems you're using," he said.

Another hindrance for Microsoft in the high-end market is the testing that must be done to make sure programs work well on the new Windows 2000 servers. Gartner Group estimates that 10 to 15 percent of Windows software packages "are going to exhibit some kind of problem,? Gartenberg said.

All this leads Gartner to believe that the adoption rate of Windows 2000 will be tentative this year and noticeably faster in 2001. "Of the installed base of NT 4 servers, 3 to 6 percent will go to Windows 2000 by year's end. Then we think the number goes as high as 38 to 40 percent by year-end 2001," Gartenberg said.

IDC's numbers were slightly different. Kusnetzky predicted that about 20 percent of Windows server systems would use Windows 2000 by year's end.

EMC's Data General division, a server maker that has backed away from Unix in favor of Windows, believes that by the end of the year 40 to 45 percent of its servers will be shipping with Windows 2000, said Bob Guilbert, director of software marketing.

Added Eunice: "Microsoft is going to have to fight from a marketing perspective for every point of share it gets. We don't believe Microsoft will or can dominate the server market the way it has dominated the desktop."

But it will become stronger, if for no other reason than that Microsoft wields a vast research and development budget. "When you've got $3.5 billion a year, you can turn a pig's ear into a silk purse," Eunice said.

 

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