Operating Systems and Applications: The Changing Vista

Microsoft is the company everyone, with notable exceptions such as CEO Steve Ballmer, loves to hate. Therefore it is no surprise that the joint release of Vista, its most recent operating system, and its accompanying Office productivity suite is seeing its share of bad press and reviews. Reviews with snippets such as this one from CNET, “Windows Vista Home Premium is essentially warmed-over Windows XP Home Edition,” are nothing new to Microsoft, and will be shrugged off. However, with this new release there are serious issues being raised not only about Vista and Office, but about operating systems and applications in general, that Microsoft must pay attention to if they are to survive. According to the New York Times, “With the Internet revolution upending business models across a broad swath of industries, Microsoft itself is feeling the heat. The challenges that the company confronts today are different from those of the past, and its market power in the personal computer business matters less than before.” The growing strength of the open source movement and the acceptance of open source products beyond the datacenter, combined with the movement toward free Web-based applications similar to those found in Office are, it is suggested, a serious threat to the Microsoft virtually all have come to know.

Microsoft has often said that by making products that work so well they stay in use even after new releases are made available, the company is its own biggest competitor. Until recently this may have been true, now there are at least two external fronts on which Microsoft is openly engaging; and the competition is mounting.

A primary competitor is now the open source community, and with a recent development in this arena the strength of this group has grown more formidable. Two of the largest open source groups, the Open Source Development Labs and the Free Standards Group, have announced that they are merging their efforts and forming a single entity known as the Linux Foundation. According to the foundation’s website, members include HP, IBM, Intel, Novell, Oracle, as well as, “every major company in the Linux industry.” In writing about the new group the New York Times says, “these companies are joining together, not just to push Open Source, but to push out Windows.” Executive director of the Linux Foundation, James Zemlin, said in an interview with LinuxDevices.com “In five years we think it will be a clear software duopoly with Linux and Microsoft fighting it out in the data center, on the desktop, and in the embedded space.” Zemlin is likely correct in his assessment, but, while open source solutions have made serious inroads into the datacenter its forays into capturing the desktops and eyes of consumers, which is half the battle, has been far less successful. However, consumers are beginning to take notice.

The Financial Times points to the Internet browser, Firefox, to demonstrate the growing acceptance of open source products among consumers, “Firefox was unknown a few years ago, but now more than one in ten people use it instead of Microsoft’s Internet Explorer.” Ten percent may not be a huge percentage, but this does illustrate the fact that consumers, not just backend techies running Linux servers, are willing to accept open source products, even something they need to download from the Web. In the future the combination of free open source products via the Web will be significant barrier for Microsoft to hurdle.

Far from being the only ones to notice this, both the Economist and the Financial Times offer a good summation of what Microsoft is facing. The Economist states, “More of the things that people want to do with computers now use the Internet rather than a hard drive as a source of applications or to store data,” and the Financial Times notes the challenge, “The danger for Microsoft is that, as people do more on the Internet, the desktop computer and its operating system become less relevant.” All of this according to the Xinhua News Agency “makes the operating system mainly a home base, a file cabinet, a platform for other things.” As these ‘other things’ become readily available from the Internet and for free, as is widely suggested they will be, Microsoft and its Office Suite will face a real threat. That threat, according to Xinhua, is already rearing its head, “If Windows is just expensive plumbing that people happen to get but don’t clamor for, then open-source offerings or new entries . . . could erode the Windows monolith. That trend has already happened to a limited degree with other Microsoft products, including its productivity software and Web browser.” The Economist questions whether freely available Web-based applications will lead to a decoupling of Windows and Office, a combination that it says go together like salt and pepper, “That could happen if consumers buying a new computer take Windows Vista but decline to buy Office 2007, because they can get similar applications elsewhere, even free.” This scenario not only threatens applications such as the Office suite, but the operating system as well. Again, from the Economist, “The next step might be for computer-makers to start pushing PCs with Linux rather than Windows installed on them.” Given the fact that the current system of running Office on a Windows machine has been so engrained in computing may make it hard to see the future as being anything different, but it will be. Google CEO Eric Schmidt said in the New York Times, “So the obvious question becomes to what degree can this replace the traditional Windows-dominant, PC-dominant, monopoly structure that we’ve all been used to . . . It’s pretty clear to me that there are enough people working on this in research universities and in companies, building applications that empower this, to make it happen.”

The New York Times says that, “The consumer rollout this week of new models of Microsoft’s mainstay products, Windows and Office, is one that many industry analysts view as the last hurrah of the fading order of computing, dominated by the PC and ruled by Microsoft.” Similarly the Financial Times says, “Vista may mark the point when Microsoft’s operating system monopoly, or at least the importance of that monopoly, begins to slip away.” Though the new release is very likely the end of an era, it is by no means the end of Microsoft. Whether Vista flies or fails Windows will remain the dominant platform for years to come. And even if Windows and Office become unnecessary, Microsoft would still remain, at least for a while. The Economist quotes a Silicon Valley veteran, “Icebergs melt . . . But they melt extremely slowly.”

A more complete version of this posting, with journal articles, and research reports can be found at the website of Analyst Views Weekly.

More information on this topic can be found in the Operating Systems section of Northern Light’s Software, Computers, & Services Market Intelligence Center.

And in the following articles:

The Real Value of Vista
BusinessWeek, February 5, 2007
When Vista finally hits the shelves on Jan. 29, most consumers won’t have a clue why they should buy it. Never mind the fanfare it will receive as Microsoft (MSFT ) Chairman William H. Gates III formally launches the new Windows from the stage of the Nokia Theater in New York. Or the hundreds of millions of dollars the software giant plans to spend through June to market it. With all of Vista’s many new features, Microsoft seems incapable of really zeroing in on the handful that will truly change the way consumers use their PCs.

Vista — It’s Microsoft’s Game to Lose
Seatle Post Intelligencer, January 25, 2007
Bill Gates has a date with “The Daily Show,” NBA star LeBron James has a cameo in a Windows ad and that rumbling in Redmond is the marketing machine gearing up for action. After a five-year wait, and repeated delays, Microsoft Corp. will release the new Windows Vista operating system next week. And based on early signs, it may be tough to escape it on your television — even if you don’t plan to put it on your computer.

Microsoft May Have Mistakenly Pegged Half a Million as Pirates
Dark Reading, January 25, 2007
Microsoft’s anti-piracy tool has marked more than one in every five copies of Windows as bogus, the Redmond, Wash., developer said Tuesday, while more than half a million users may have been mistakenly pegged as pirates.

Hello Windows Vista, Goodbye PC
Information Week, January 24, 2007
Microsoft’s New York City bash on Jan. 29 to mark the official, it’s really, really here, introduction of the consumer version of Windows Vista will be the last “operating system as event” the PC world will ever witness. The reason is obvious: with Vista, Microsoft has taken the monolithic OS just about as far as it can go. With dual-core processors and systems software stuffed to the gills with features, there’s not much left on the table to be added in future iterations.

Microsoft Profit Expected to Fall in Pre-Vista Lull
Reuters, January 23, 2007
Microsoft Corp.is expected to post its second decline in net profit in the last three quarters this week in the lull before a profit boost from new Windows and Office software debuting this month. Investors will be on the lookout for signs of higher expectations for the year based on the software upgrades or signs of improvement from the company’s Internet division.

Group Formed to Support Linux as Rival to Windows
New York Times, January 22, 2007
Linux, the free operating system, has gone from an intriguing experiment to a mainstream technology in corporate data centers, helped by the backing of major technology companies like I.B.M., Intel and Hewlett-Packard, which sponsored industry consortiums to promote its adoption. Those same companies have decided that the time has come to consolidate their collaborative support into a new group, the Linux Foundation, which is being announced today.

Open-Source Groups Merge Red Herring
Red Herring, January 22, 2007
The Open Source Development Labs and the Free Standards Group will merge to form the Linux Foundation in an effort to build strength and increase their influence. Formed in 2000, the Open Source Development Labs (OSDL) employs Linux founder Linus Torvalds. The move to combine forces could strengthen the hand of the open-source operating system against Windows.

Microsoft’s Vista Sales Seen Promising
Forbes, January 19, 2007
Vista may not have made it into personal computers in time for Christmas, but indications are that the holidays were good to Microsoft nonetheless. With December sales of PC’s beating expectations by rising 8.7% from a year ago, according to industry tracker IDC, consumers appear primed to gobble up Microsoft’s new Vista Windows operating system as it becomes available later this year, according to Friedman Billings Ramsey technology analyst David Hilal.

Microsoft’s Results to Be Hurt by Vista Delay
MarketWatch, January 18, 2007
Analysts surveyed by Thomson First Call expect the world’s largest software company to earn 23 cents a share for the fiscal second quarter ended in December, down from 33 cents a year earlier. Redmond, Wash.-based Microsoft is seen posting revenue growth of just 2%, to $12.1 billion, from $11.8 billion. That compares to revenue growth of 11% that Microsoft achieved in the September quarter.

Peaks, Valleys and Vistas
The Economist, January 18, 2007
On January 30th Microsoft releases to consumers the newest version of its operating system, called Windows Vista. Although the company said on January 17th that it would make Vista available for sale and download online, most people will buy the upgrade in old-fashioned boxes, just as they did back in 1995. But this time, despite plenty of razzmatazz, few customers will be queuing up to buy a copy.

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