The Open Road

Open source is used to playing underdog to incumbent proprietary vendors. What will happen when open source dominates, rather than commoditizes, markets?

I ask because several open-source projects are not far from owning dominant market share in their respective markets. Mozilla's Asa Dotzler reports that Firefox is "on track to easily reach 25 percent of global usage by the end of the year." That may not sound like much, but given that Microsoft has been losing five percentage points of browser market share each year while Firefox gains five percentage points, and it's not hard to imagine Firefox surpassing IE's market share by early 2013.

Firefox isn't alone. Indeed, the Apache Web Server already dominates the Web server market, even despite new entrants to the market, as Glyn Moody highlights.

Linux, for its part, is still only 13.8 percent of the paid server market, while Windows Server still claims 38.1 percent market share, according to IDC. It has a long way to go, but in some markets like cloud computing and the growing Web 2.0 market, it plays a more authoritative role.

So, what happens when these and other open-source projects dominate their respective markets? Will it change how we market open source? Will it mean more research and development dollars must be invested?

Traditionally, open source has done a fantastic job of commoditizing expensive, well-understood markets. While I believe open source can innovate, particularly with companies behind open-source projects, it's still an open question as to whether the financial returns from open-source sales can pay for the heavy R&D and marketing costs that are generally required to create new products and new markets.

Open source has been better at business-model innovation than product innovation, though there are some notable exceptions.

Forget innovation for a minute, however: what will we do when Microsoft, Oracle, etc. are the runners-up, not the market leaders? Microsoft is a convenient (if inaccurate) proxy for all things that are bad in the software world for open sourcerors, but imagine the shift in thinking required to compete when, for example, Firefox has 80 percent market share and IE owns less than 20 percent. Who will we blame for our problems when our straw men are gone?

Perhaps none of this matters, however, as we could see dominant community-led open-source projects fork themselves long before they reach critical, market-dominating mass. It's not hard to imagine splinter groups forming within big open-source projects to take them in different directions, even as Joomla did with Mambo, Ubuntu did with Debian, etc.

The antidote to this is the open-source foundation. Among the examples of strong open-source projects that haven't forked--Eclipse, Apache Web Server, Mozilla Firefox--foundations have been critical to keeping these together. Linux, for its part, has been forked many times, but its core is held together by the Linux Foundation.

I believe the key to attaining dominant market share, and to preventing forks, is the open-source foundation. Over time, I suspect we'll see more "open-source companies" separate themselves into foundations, to manage the code, and corporations, to manage the monetization. This may be the only way to both liberate and dominate at the same time.

Microsoft CEO Steve Ballmer probably wishes his prediction of a "fundamental economic reset" wouldn't have proved so prophetic as the company Thursday reported "disappointing" earnings, with net income plummeting 17 percent, online ad sales down 14 percent, and overall sales for the year down 3 percent.

Disappointing? That's generous. The results are traumatic and point to the need for a "fundamental reset" in how Microsoft does business. Fortunately for the company, its SharePoint business offers some clues as to how it can revive its fortunes.

Despite the occasional base hit in its Xbox business and a solid line drive with SharePoint, which helped to prop up the Office business, Microsoft has been consistently striking out in its attempts to guard its Windows hegemony.

In part this is because Microsoft has failed to deliver compelling, new value to Windows customers. Vista was a disaster and the Windows 7 upgrade path for most customers, as Walt Mossberg writes, is so painful as to almost be unthinkable for most customers.

Microsoft points to a global weakening in personal computer demand as one reason for its Windows decline, but this same weakness isn't having the same effect on Apple, which showed growth in its Mac shipments and dominates the "premium" computer market, now claiming a whopping 91 percent share of all personal computer retail purchases above $1,000 in the U.S., according to NPD Group data.

Apple is winning in this market because customers really like its technology. Microsoft has failed to "wow" its prospective and existing customer base.

With both Intel and Apple reporting somewhat rosy earnings in the face of the harsh economic climate, it's clear that the problem really isn't with the industry, which is soft but not terminal. No, the problem is Microsoft.

Microsoft hasn't figured out premium value, even as Linux-powered Netbooks eat at its ability to compete profitably in the economy PC market. Its Web strategy is still disjointed and frail.

Microsoft is stuck zealously guarding its past successes at the expense of its future. The company needs Game Plan 2.0.

Microsoft CFO Christopher Liddell says, "There are some signs that we have at least seen the worst." The problem is, that "worst" (Apple, Netbooks, open-source price pressure, etc.) isn't going to leave Microsoft alone anytime soon.

It's easier said than done, but Microsoft needs to accelerate its experiments with open source. It needs to figure out new ways to reach customers, and to upsell them with more than repackaging of the same product. (Spoiler: Windows 7 Titanium Edition won't work.)

In short, Microsoft needs to reset itself to compete in the 21st Century, which promises to be the most painful thing it has done in its decades-long existence.

If it's any consolation, the company seems to be doing this with SharePoint, which continues to boom because of and not despite a weak market. SharePoint does several things right.

First, Microsoft SharePoint combines wide distribution of a basic and free product (SharePoint Services) that seeds a market for the paid version (SharePoint Server 2007).

Second, SharePoint helps companies bridge their investment in client-side Office to server-side services. This allows Microsoft to tie its strength in the client to a growing strength in the cloud.

Third, Microsoft has effectively (though still in limited fashion) used open source to augment SharePoint's value without undermining its pricing power, e.g., SharePoint Learning Kit. In other words, Microsoft is fostering open-source complements for the proprietary SharePoint core.

In these three ways, among others, Microsoft is showing that it can bridge the gap between its past and its future. But it needs a lot more SharePoint-esque strategy, and a lot less hubris. Microsoft's claims around the iPhone and other competitors have lately fallen flat.

Unless it learns from these experiences, Microsoft, too, will fall flat.

Follow me on Twitter @mjasay.

Recently, Google made a series of changes to its Chrome end-user license agreement, including the removal of language that describes how users can terminate their relationship with Google, as ReadWriteWeb discovered. Evil? Nah. That's likely just lawyers talking.

Or what about Google's efforts to get special treatment with broadband operators, paving a Google-centric "fast lane" on the Web?

Today's news from Computerworld, however, has Google looking more like the old Microsoft monopoly it replaces.

While Google's one-download assortment of Google code and third-party applications--the Google Pack--used to install the Mozilla Firefox browser by default, Google has now eliminated Firefox as the default browser in its Google Pack installation.

Yes, Firefox is still available as a choice to Google Pack users, but is this just one more step toward Google's own tightly integrated universe?

Microsoft, of course, is (or was) the master of the tie-in, using its dominance in Office or Windows to push customers to use Internet Explorer, Windows Media Player, etc. Google has yet to reach the "push" phase, preferring instead to nudge, cajole, and pull would-be customers along, but its increasingly tenuous ties to Firefox suggest that its aim to unseat Microsoft can't accommodate third parties. Not for long, anyway.

Google, of course, is different. As a general rule, Google embraces openness. Perhaps the browser is just a different beast, given its critical importance to Google's services. Entrusting the gateway to Google's Web to third parties may simply not be viable.

Even so, I liked to think that third parties like Mozilla helped to ensure that Google would "not be evil." Time will tell if Google has the will power to keep itself honest.

In doing some blog research this morning (it happens), I came across this gem of an article from Wired back in 2002. The article traces Microsoft's antitrust feud with state regulators, and features cross-examination of Red Hat's Michael Tiemann by Microsoft attorney Stephanie Wheeler.

Microsoft's complaint? Red Hat wasn't a good enough competitor and hadn't done enough to make Linux popular:

Cross-examining Red Hat Chief Technology Officer Michael Tiemann, Microsoft attorney Stephanie Wheeler said Red Hat had spent little money on research and development, and dedicated few of its employees to winning over software developers to write programs for Linux...

Tiemann conceded Red Hat doesn't devote people to winning software developers over to Linux. He said the company's strategy was to take advantage of Linux enthusiasts outside the company to do that.

It's too bad Red Hat took the bait. Since then, Microsoft has been desperately trying to put the genie back in the bottle. Microsoft spent years trying to convince enterprises to "Get the Facts" on Linux, only to discover that many were doing just that, and it wasn't helping Microsoft.

This is the same Microsoft that aggressively went after Red Hat in 2006 through a patent agreement with Novell, and subsequently dumped over $350 million into Novell in 2007 to fuel its attempt to kill Red Hat.

Red Hat has, of course, expanded its R&D commitment to Linux since 2005. It's the same Linux that continues to grow through community evangelism, rather than paid lackeys.

Microsoft, of course, was trying to find defenses to its antitrust foes back in 2001, and thought that Linux could have been a credible competitor with serious investment. Guess what? It was right. I bet the Microsoft crew wishes that it had been wrong.

"The die is cast," declared Julius Caesar, anticipating Microsoft's fateful decision to protect its Windows cash cow at all costs.

Years later, as Joe Nocera eloquently opines in The New York Times, Microsoft has tethered itself to its Windows operating system and almost certainly lost its way on the Internet as a result:

Windows is already dying a death by a thousand cuts. Yes, Microsoft still makes billions by selling pre-installed Windows via computer manufacturers. But ever-so-gradually, the Internet is upending its business model just as surely as it has upended models for the music, television and newspaper businesses....Bill Gates saw this coming many years ago.... But in the subsequent decade-plus, the company has been unable to keep it from happening. Think about it: do you really care anymore which operating system you use?

Microsoft opted to try to harness the Web to accompany its desktop monopoly, but the Web is too big to serve as handmaiden to any one company's monopoly. Microsoft needs to learn to serve the Web, not the other way around.

The more Microsoft seeks to protect its past (i.e., desktop monopoly and all the revenue that comes with it), the less relevant it will be to the future. Microsoft hopes to straddle the two, and maybe it will succeed. But its desktop anchor may well end up sinking the ship.

Microsoft's business has never been better. Ironically, that may well be the problem.

I will admit to a love/hate relationship with Microsoft. I tend to respect Microsoft's technology but not the business practices wrapped around it. In fairness to Microsoft, it has traditionally been the latter that really drives its business, pushing the company into new markets.

Of late, however, Microsoft's successful business strategies seem to be stifling, not stimulating, the company. The company's success at hoarding existing monopolies seems to have made it intellectually lazy in seeking new ones. Even SharePoint, which has been phenomenally successful financially, is little more than a lightweight portal designed to prop up Microsoft's existing businesses: Office, SQL Server, Windows, etc.

This may be good for the industry, but it's certainly not good for Microsoft. Whatever Microsoft may think of itself, it has never been much of a technology pioneer, preferring instead to copy others' ideas but deliver them more conveniently and at better pricing.

Not anymore.

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A group of international marketers cites Apple and Google as two of the top-four brands that they "can't live without." Microsoft? "Microsoft is the top brand they wanted to argue with and also the top name they wanted to rebrand."

In a separate survey of 12,000 US business people, Microsoft's "brand power" dropped from number one in 1996 to number 59 in 2008. That precipitous drop doesn't bode well, obviously:

...[A] decline in and of itself is not indicative that a company is losing its mindshare or reputation among customers. However, what's significant in Microsoft's case is that the decline has been consistent over a number of years, and has plunged dramatically in a brief time. "When you see something decline with increasing velocity, it's a concern," [the CEO of the surveying company] said.

The article goes on to point out several possible reasons for the decline, but I think it's an inevitable result of hoarding past monopolies without building a future in tomorrow's most relevant markets: Web and mobile. Indeed, Microsoft's hoarding of the past is precisely what keeps it from branding the future. Apple's surging brand value is precisely related to its stakes in the future.

Which billions do you want, Microsoft? Yesterday's or tomorrow's? It seems you can't have both.

There is a tragic (but rich) irony in the news that Microsoft failed in its appeal to throw out Novell's decade-old antitrust lawsuit against it. On one hand, you have Novell arguing (rightly) in court that Microsoft unfairly bullies competitors:

"Microsoft specifically targeted WordPerfect and Novell's other office productivity applications because they threatened Microsoft's Windows monopoly," according to the Novell court filing quoted by the Bloomberg news service.

In its case, Novell also said that Microsoft withheld technical information to make WordPerfect work with Windows 95.

On the other hand, we see Novell supping at the feet of Microsoft to revive its Linux business, conveniently forgetting that what Microsoft giveth, Microsoft taketh away the minute a competitor becomes inconvenient. But the irony gets better as we dig into Novell's complaint with Groklaw:

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I read this article on European Commission chief Neelie Kroes last night, and Tuesday morning woke up to news that the European Union is set to levy even more fines against Microsoft. Why? According to Bloomberg News:

European Union regulators may fine Microsoft Corp. for failing to comply with a 2004 antitrust order to charge "reasonable" fees for patent licenses on operating system software, three people familiar with the matter said. The fine may be announced as soon as February 27, said the people, who declined to be identified because the decision isn't public. Microsoft said in a January 24 U.S. regulatory filing that the penalty may be as much as 1.5 billion euros ($2.2 billion).

Wow. I continue to believe that the industry is able to take care of Microsoft by itself. Ms. Kroes and the European Commission are fighting yesterday's battle, while open source and SaaS are already winning today's battle against Microsoft, step by step.

I don't believe in victory by government fiat. I believe that markets--that competitors--are more than capable of toppling Microsoft's lard-laden dominance of 20th-century markets. Open source doesn't need the European Commission's help. I won't say "no" to Ms. Kroes taking a few billion from Microsoft's bank account, but we don't need it to win.