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Pecked by Penguins

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DQI Bureau
New Update

Four years ago, Microsoft Corp could barely be bothered with Linux. At a

trade show in 1998, then-President Steven A. Ballmer referred to Linux, the

upstart computer operating system that rhymes with cynics, as "lie-nucks."

When asked if he was sure of the pronunciation, Ballmer quipped: "There is

no financial incentive to answering that question." Translation: Linux is

just a pipsqueak that isn’t worth our time.

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These days, there’s no Microsoft employee who doesn’t know how to

pronounce Linux. Microsoft has made a sport of vanquishing competitors–from

Novell and Borland to Lotus and Netscape Communications. But Linux is looking

more and more like a sliver of Kryptonite that’s working its way under

Microsoft’s cape. It has Microsoft flummoxed precisely because it’s not like

any of the company’s previous foes. "We’re used to competing with

products and companies," says James E.

Allchin, the group vice-president who runs Microsoft’s Windows business.

"It’s different than anything else we’ve dealt with before."

Linux isn’t a company, and it’s more than just a traditional software

product. It’s a social phenomenon. The so-called open-source software is

created collectively by thousands of volunteer programmers, many of whom have

day jobs with corporations that are Microsoft’s customers. Since Linux is

available free of charge, it undercuts Microsoft’s traditional price

advantage. And the Windows monopoly actually fuels Linux. Customers leery of

being locked into proprietary Windows flock to the upstart operating system.

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The stakes are sky-high. While Linux hasn’t made much headway against

Windows in desktop PCs, it’s rapidly gaining ground in server computers. That

threatens to stifle Microsoft’s expansion in an important market where its

revenues grew just 5%, to $4.4 billion, last year, compared with 15.5% growth in

its desktop software business.

To date, Microsoft has stumbed in its efforts to put down the Linux

challenge. First, in 1999, the company created a Web site under the heading

"Linux Myths" that questioned Linux’ performance and reliability. It

was ineffective. Then in June, 2001, in an interview with the Chicago Sun-Times,

Ballmer labeled the software a "cancer" because open-source rules

impinge on intellectual-property rights. In the past year, the software giant

has been lobbying governments to expand their purchases of Microsoft software–only

to see dozens of countries consider legislation that would encourage the use of

open-source software such as Linux. "The strategy

has failed, and Microsoft should abandon it immediately," says Forrester

Research Inc. analyst Ted Schadler.

Microsoft’s response to Linux has even given rise to internal critics.

David Stutz, a former Microsoft group program manager who retired on Feb. 7,

took the company to task in an essay on his Web site. He wrote that the threat

Microsoft faces from open source is nothing less than the "erosion of the

economic value of software." His admonition: "Microsoft needs to

resist the urge to get defensive and instead innovate." The company

responds that it is innovating.

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The

Five Stages of Dealing with Linux
Denial

In

1998, Microsoft’s then-President Steve Ballmer assets that Linnux

is not important enough for Microsoft to bother with .

Anger

After

Linnux gains strength in 1999, irked Microsoft executives label the

software " a cancer" because it doesn’t comply with

mainstream intellectual-property rules

Bargaining In

2002, Microsoft hires a test lab, Mindcraft, and a research outfit,

IDC, to compare Linux performance and cost to Windows. Both studies

found in favor of Windows, though few tech buyers seemed influenced

by them.

Depression Last

November, sales chief Orlando Ayala sends e-mail to his staff,

imploring them to do a better job responding to news of Linux

converts.

Acceptance

Not there–yet.

The

struggles Microsoft has faced dealing with Linux bear some

resemblance to the five stages of grief psychiatrist Elizabeth

Kubler-Ross ascribed to terminally ill patients

At the same time, Microsoft is working on a new war plan. Last year, it

tapped Peter Houston, senior director of server strategy, to study the Linux

threat and help formulate a combat strategy. Houston plans to focus the debate

on "business value," where the company believes it has an advantage.

While Linux itself is free, Microsoft argues that it costs far more to maintain

Linux than Windows on computers. To prove the point, Microsoft commissioned a

study by market researcher IDC that was released in December. The study

concluded that because Microsoft had created more software tools for managing

and updating Windows, the operating system would be 11% to 22% cheaper to run

than Linux over a five-year period in four out of five different common

computing tasks, such as sending files to printers and running security

applications. Windows was more expensive when it came to serving up Web pages.

Yet even this tactic seems to be backfiring. One of the study’s authors

accuses Microsoft of stacking the deck. IDC analyst Dan Kusnetzky says the

company selected scenarios that would inevitably be more costly using Linux.

Also, he believes Windows should be cheaper to operate, since it has been around

longer, giving Microsoft more time to develop software to manage the operating

system.

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But its assertions about Linux’ hidden costs don’t always pan out in the

real world. "Our experience is different," says Jeffrey R. Davis, the

global technical lead at Amerada Hess Exploration & Production, who manages

400 Linux servers by himself.

"It takes fewer people to manage the Linux machines than Windows

machines." Microsoft’s latest gambit is to play nice with Linux. It’s

glomming on to the open-source community’s philosophy of sharing and letting

customers take peeks at its top-secret Windows source code. At the LinuxWorld

conference in New York in late January, Microsoft manned a little booth tucked

away at the back of the hall. There, a handful of employees wore black t-shirts

with the words "Let’s Talk" printed on them.

It turns out learning how to pronounce Linux was the easy part. The company’s

still learning how to deal with it.

By Jay Greene in Seattle in BusinessWeek. Copyright 2003 by The McGraw-Hill Companies, Inc

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