Coming to terms with Microsoft

(The following is exerpted from “Partnering With Microsoft: How To Make Money In Trusted Partnership With The Global Software Powerhouse” by CMP Books)

IT services, software and reseller firms have many software vendors with whom they can partner, including Microsoft, IBM, Oracle, Sun, Red Hat, Novell and Apple. But, by far, Microsoft has more partners than all of these companies. Some partners have a love/hate relationship with Microsoft, but all high-technology firms have a choice: they can either compete or partner with Microsoft or, increasingly less likely, deliver products or services in a market untouched by Microsoft.

A firm needs to decide which path to take relative to Microsoft-to saddle up with the software giant or pursue a strategy based on alternative and competing technologies such as Java and Linux, for example. But one must take some basic facts into account before deciding which path to take. Compete with Microsoft? Software firms that have competed with Microsoft have usually lost despite attempts by government regulators to rein in the company. There are exceptions, of course, notably in the personal-finance software and online-services markets where Intuit and AOL, respectively, continue to dominate over Microsoft. Still, no vendor has been able to pose significant threat to Microsoft’s dominance of the desktop operating system and application software markets. Apple’s early success in consumer equipment with an easy-to-use desktop operating system was whittled away by Microsoft’s release of progressively more powerful versions of Windows on less-costly commodity hardware. Apple today still makes well-engineered equipment that runs a BSD (UNIX)-based operating system. But its market share is nothing compared to what it used to be, thanks to Microsoft and its ecosystem of services, software and reseller partners.

Netscape, too, virtually owned the web browser market it invented until Microsoft focused on the segment. Microsoft’s Internet Explorer-which is integrated with Windows-is now the most pervasive web browser, and owns more than 90 per cent of the market despite SEC constraints against Microsoft. Netscape’s share of the web browser market was pronounced negligible at roughly three percent in 2002, compared to only five years before when its Navigator browser dominated it. AOL purchased Netscape and tried to resurrect Navigator but failed. Today, an open source spinoff of Netscape called the Mozilla Foundation has gained some traction with a re-engineered web browser dubbed FireFox. Meanwhile, Internet Explorer remains the leading browser. In fact, Microsoft announced plans to ship a standalone version of Internet Explorer 7 in 2005, even as it continues to enhance its browser’s integration with the next-generation Windows operating system, codenamed Longhorn. Novell competed against Microsoft in several software categories: enterprisescale network operating system, directory services and an email platform. Yet Microsoft-again the latecomer to market-demolished Novell NetWare’s marketshare lead with progressively more powerful versions of NT, Windows 2000 and 2003 Servers, Active Directory and Exchange. Like Netscape, Novell watched the software category it created get usurped by Microsoft. Novell has since re-invented itself twice, first in consulting services, then in Linux-based desktop and server operating systems with the completed acquisition of SuSE in January 2004.

Still, its total Linux revenues fell under US$50 million in FY04 and its attempt to migrate its remaining channel partners from NetWare software and services firms into Linux companies has proved challenging. Since Windows 2000 debuted, many NetWare partners have become Microsoft partners. Oracle has long held the lead in enterprise-scale databases although Microsoft has been diminishing that lead with SQL 2000 on Windows 2000 Server Data Center Edition, a high-end offering which it grew in 2003, to an 11 per cent share of the database market. SQL still lags well behind IBM’s DB2, which has 33 per cent of the market, and Microsoft has some catching up to do to unseat Oracle. But recent acquisitions in the business intelligence and related niches as well as its planned release of SQL Server 2005 (code-named “Yukon”) and a “Longhorn” version of SQL indicate Microsoft’s relentless drive to pursue more market share in this lucrative software category.

Moreover, SQL Server’s increasing role as the underlying foundation and data store for all of Microsoft’s server applications makes it an increasingly compelling piece of Microsoft’s desktop-to-data center integration strategy. Sun Microsystems is another longtime Microsoft antagonist and UNIX giant that capitulated in its struggle to drive a global standard for Java and to crush Microsoft’s .NET programming model and software development paradigm. In 2004, the ailing Sun accepted a US$1.6 billion settlement from Microsoft to end Sun’s longstanding antitrust suit against it and agreed to work with Microsoft, ostensibly for the benefit of customers and partners alike. The firms agreed to cooperate on the interoperability of Sun’s Solaris, middleware and Java stacks with Microsoft’s .NET platform, and to pursue joint standards and supportability.

This historic pact, ensuring that Sun’s Solaris UNIX operating system and Windows technologies play better together, is not only a play to please customers. The two former archrivals and vendors of proprietary operating systems are now united in spirit against a common enemy-Linux and the open-source movement. In terms of Microsoft’s competitors, only IBM has stayed the course. But much of IBM’s annual revenues are still derived from hardware and services sales that pivot on its selling licensed copies of the Windows operating system for servers as well as integration services for Microsoft’s platforms. Still, IBM’s decision to exit the PC business unit, and to increase its foray and investment into Linux for its enterprise and down-market servers and software, is a clear threat to Microsoft’s proprietary product base, one which Microsoft will presumably fight with all the vigor that proved its success against earlier competitors. And its track record is much better than its rival’s. IBM has unsuccessfully attempted to compete against Microsoft on the PC software front. IBM’s Lotus Software Division invented the top two killer applications that rocked the Windows market-the spreadsheet and Notes email/groupware-but both were overpowered by Microsoft’s late-entry Excel and Exchange offerings.

Today, Lotus 1-2-3 and SmartSuite-Lotus’ competitor to Office-continue to have small installed bases but those products are no longer enhanced. Lotus Notes, once the darling application of the industry, retains an installed base in the multi-millions but most new growth in the email space is for Microsoft Exchange. It is worth noting that the inventor of Lotus Notes, Ray Ozzie, founded another collaborative-software firm (after IBM purchased Lotus) called Groove Networks that formed a close partnership with its former rival, Microsoft, and was acquired by it in 2005. This seems to be the case for many other ISVs that once competed with-and were defeated by-Microsoft. Among other giants in the global information technology (IT) industry, Cisco Systems-with products in the internetworking and network-security space-has prudently chosen to collaborate with Microsoft and sells products that run on Microsoft server platforms. Yet Cisco’s record as a partner with Microsoft-and with other high-technology firms, such as HP and IBM-has been spotty due to Cisco’s intended reach into storage and network-layer security and management. Its technology often treads on product offerings of its partners and competes with their strategic direction. Cisco, for example, launched in 2004 a Network Admission Control (NAC) platform designed to establish network security at the network layer.

Microsoft soon thereafter launched its competing Network Access Protection (NAP) platform, maint

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Jim Love, Chief Content Officer, IT World Canada

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