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There's no doubt about it, Microsoft (Nasdaq: MSFT) is a behemoth. It has permeated the computer industry and has an enormous amount of clout. So, what's to rain on Microsoft's parade?
Actually, a threat is emerging that can do considerable damage to this powerful software company. The threat is free software.
This article will look at this threat to Microsoft's business and what responses the company should be making to this threat.
Some Background
An enterprising software genius named Linus Torvalds created an operating system called Linux. Let me quote you the first sentence of the Linux Web site: "Linux is a free Unix-type operating system originally created by Linus Torvalds with the assistance of developers around the world." The operative word in that sentence is "free."
Open Source Defined
Linux, based on the open-source development model, has proven to be quite an effective operating system. I'm going to let the Open Source Initiative (OSI) describe the open-source phenomenon:- "When programmers can read, redistribute and modify the source code for a piece of software, the software evolves. People improve it, people adapt it, people fix bugs. And this can happen at a speed that, if one is used to the slow pace of conventional software development, seems astonishing."
Has open source worked? I think so. Although I travel quite a bit and rely on my Dell laptop with Microsoft XP software, the desktop in my office is an iMac G5 running Mac OS X, a recent Christmas gift from my son. A quote from Apple's (Nasdaq: AAPL) Web site best describes its position on open source:
- "Apple believes that using open-source methodology makes Mac OS X a more robust, secure operating system, as its core components have been subjected to the crucible of peer review for decades. Any problems found with this software can be immediately identified and fixed by Apple and the open-source community."
A Personal Comparison
How would I compare Microsoft's operating system and Mac OS X? First of all, a personal disclaimer: I own Microsoft stock and I believe that the company is an exceptional example of American efficiency and ingenuity, thanks to the genius (and I sincerely mean that) of Bill Gates and the people with whom he has surrounded himself.
With that said, I'm sorry to say that my laptop has crashed on many occasions, especially when I "upgraded" my software to Windows XP. I personally enjoyed Windows 98 more than XP and found it a very reliable operating system.
Now let's talk about my desktop's operating system, Mac OS X. It has been virtually trouble free. In fact, a recent article on the MacNewsWorld Web site, a publication of the ECT News Network, which, incidentally, publishes the E-Commerce Times, had the following headline: "Why Viruses Have Trouble Penetrating the Macintosh." I'll leave the reading of that to you, but suffice it to say, I've found OS X to be virus free.
Microsoft's Challenge from Open Source
Although Microsoft software has a virtual monopoly on operating systems, there is an ever-growing awareness that there is another major rival that can more effectively (and without cost!) do what Microsoft is doing, and that is the free software movement, currently dominated by Linux.
If one can obtain open-source software, which means that the underlying software code is, by definition, free to all, isn't the decision a no-brainer? Well, certainly the country of Brazil thinks so.
The relatively new president of Brazil (he's been in office for about two years) is on a mission. The mission is to bring computers to the masses with a government-assisted software purchase program. However, the computers that the country will help to underwrite must have open-source operating systems.
In fact, the president of Brazil, Luiz Inacio Lula da Silva, has mandated that the government industries and the state-run companies must start switching from expensive operating systems, made by Microsoft and other companies, to free operating systems. Do you think this is a threat to Microsoft? I certainly do.
Microsoft's Reaction
What is Microsoft doing to lessen the impact on its business in Brazil? It is offering a less-expensive and easier-to-operate system to Brazil.
Currently, the Microsoft people are talking with governmental personnel in Brazil to see if they can somehow participate in Brazil's new effort of bringing computers to the masses. Will Microsoft be successful? Based upon the political climate in Brazil, I'm not overly optimistic.
What's Microsoft To Do?
First of all, I think that it must take a good, hard look at open-source based, free operating systems and be completely open and honest about their effectiveness. They must recognize and accept where they work and where they are superior to Microsoft's operating system.
I believe that they also should have an open dialog (no pun intended) about these open-source systems and see if there are areas where they can possibly work together in order to deliver the best possible operating systems to the public.
I am not naive, and I realize that open-source systems are free and are run by non-profit companies (note that Linux's Web site ends in dot-org, not dot-com). However, the fact remains that open source is here and it is providing some wonderful software to the public. To pretend that it does not exist could be disastrous for Microsoft.
I believe in capitalism and free enterprise. What has made this country so strong is capitalism's ability to adapt to all sorts of challenges.
In this case, Microsoft must adapt so that it can more boldly confront the open-source phenomenon and continue to flourish as the world's pre-eminent creator of computer software.
Challenges can be good for us -- they can make us stronger. Hopefully, Microsoft will rise to this challenge and come out a stronger, more effective company. With the genius of Bill Gates backing the company, I don't doubt that Microsoft will prevail.
Good Luck!
Theodore F. di Stefano is a founder and managing partner at Capital Source Partners, which deals in bringing small-cap companies public. He also is a frequent speaker on the subject of financial advice for small businesses as well as the IPO process. He can be contacted at Ted@capitalsourcepartners.com.
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