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Re: Linux Netbooks Eating Microsoft's Lunch

On Feb 20, 8:10 pm, High Plains Thumper
<highplainsthum...@xxxxxxxxxxxxxxx> wrote:
> amicus_curious wrote:
> > High Plains Thumper wrote...

> >>http://www.netbookdigest.com/2009/02/12/the-cold-numbers-of-microsoft...
> >> orhttp://tinyurl.com/bb94re

> >> [quote ....]
> >> $75,600,000  / $150,000 per employee = ~500 developers.

> >> Developers are the lifeblood of a software company.
> >> Microsoft’s ability to deliver innovative products is being
> >> stung by Linux in the netbook market. Unless Microsoft 7 is
> >> a hit, this trend will accelerate. Unfortunately for MSFT,
> >> Windows 7’s is based off of Vista and its cheapest version
> >> will limit users to running 3 programs at a time. [/quote]

Thumper has a key point here.

It isn't whether Linux completely DOMINATES the market, but rather
whether Linux and OSS become a threat to Microsoft's REVENUE.

In economics there is a principle called the law of diminishing

If you're in the desert and you haven't had anything to drink in 3
days, you would be on the verge of death, and if the guy on the camel
demanded all your cash in exchange for a drink and a ride to
civilization, even if you had $10,000 in your pocket, you'd probably
agree to the deal, because the demand, the need, and the urgency of
the need are extreme.

If, after coming to the oaisis, you found earned $50 and were having
several drinks with your new friends, and the same guy on the camel
and offered you some water and a ride to the post office, which is now
across the street, you'd probably decline his offer.  There is no
longer any urgency, the need is much less severe, and the demand is
much lower.  You might not even pay $1 for his dirty and slightly
water, if you could get the fresh clean water for free at the local

Microsoft may be hitting the same wall.  Businesses don't need Windows
and MS-Office, and they certainly don't need upgrades as much.
Microsoft has been offering support, but the CIOs have figured out
that they already have to monitor and filter Microsoft's automated
updates because they keep breaking the corporate 3rd party software.
The result is that they are not willing to spend as much as they used
to for upgrades and applications.

Vista and Office 2007 are being perceived as something like smelly
rancid water that's been stored in a bag for several weeks.  The
existing versions, supplemented with new OSS and Linux extensions
provides fresh clean water.  Corporations are not only refusing to
upgrade, they are demanding unexpiring transferable licenses that can
be installed or used or accessed from ANY machine, INCLUDING one that
is not sold with Windows or an employee desktop or notebook that isn't
running Windows as the native operating system.

CIOs have been ordered to have a "transition plan" that gives them the
freedom to migrate to Linux at some future point.  Many got those
orders in 2001 when XP was "force fed" along with price hikes on
support plans.

Many companies have been paying as much as $200/person/year for basic
support services which mainly consist of being told by Microsoft help
desk to reinstall the application or re-image the hard drive.  There
is no effort to do root cause analysis, and no promise to fix the
actual problem that caused the failure in the first place.

XP users have the notorious "Slow-Down", with XP performance gradually
deteriorating as XP attempts to index everything stored on the
computer (even in tempororary files).  Memory consumption has gotten
out of hand, and 3rd party applications still run poorly on XP.  Many
companies are STILL running on Windows 2000 and are likely to migrate
to Linux if pushed to hard to Migrate to something that they consider
inferior.  Microsoft has to offer something that's better than BOTH
Windows 2000 or XP AND Linux.  It has to be faster, use less memory,
and use storage space more efficiently.

But Microsoft is offering Vista, which gobbles up huge amounts of
memory and storage to provide 3D graphics and fast video game
performance, which is a liability to corporate executives, who want
their employees WORKING instead of playing video games.

Microsoft doesn't just have to offer a technically superior operating
system and Office Suite, they also have to offer increased
PRODUCTIVITY that is superior to 3rd party options including Lotus,
Sun, and OSS options.

With corporations being told to tighten their belts, the FIRST thing
they want to cut is huge payments to Microsoft for non-service.  Many
are reducing or terminating their service, and many are demanding
unrestricted use of the licenses they feel they have already overpaid
for ($200/user/year for 10 years).

At one point Microsoft was trying to demand as much as $100/user/MONTH
for support that included Windows, Office, Access, SQL Server clients,
CALs, Project, and Visio.  And the MSDN offering was even higher.  Of
course these were probably MSRP and the actual amounts paid were
probably 1/4th to 1/10th of that initial number, but Microsoft is
going to have to sharpen it's pencil much more, and give up the
fantasy island MSRP, because those prices have almost nothing to do
with reality anyway.

> > But Microsoft didn't lay off anyone of any stature and the
> > announced cuts were in specific areas like FlightSimulator,
> > not Win7 development.

The key word is LIKE.  As in LIKE but not limited to.

Microsoft has already had a problem trying to decide what applications
it considers strategic enough to add to Windows to compete with Linux/
OSS.  Microsoft is not getting the support it hoped for for it's own
FOSS initiatives, because the licenses are too restrictive.

Flight Simulator was the "standard" for proving that Linux and other
competitors were NOT compatible with Windows.  Microsoft made SURE
that Flight Sim called undocumented features that wouldn't exist on
alternatives such as DR-DOS, OS/2, WABI, WINE, CrossOver, and even
virtualized Windows.

Of course, part of the problem is that corporate PC buyers don't care
anymore.  These days, they won't even buy a machine that will run
Vista but won't run Linux and XP and even 2K.

Microsoft might even find that there is a market for $30 Windows
"appliances".  Virtual machines for VMware, VirtualBox, and other
Linux based VM systems that allow the PC to run Windows and Linux
concurrently.  Just like Windows and OS/X on the Mac run concurrently.

Microsoft is losing it's grip and Ballmer knows it.  He still
considers Linux to be the biggest single threat.  Bigger than Apple
and Google.  His big fear is that Google might throw it's enormous
weight behind Linux and start offering a super-low priced Linux system
that installs both Linux and Windows as "guests" that are downloaded
from the Google "cloud".

Or VMWare who has already used ESX to create desktop machine that run
a very light Linux kernel which then loads secure Windows images from
the corporate network, along with Linux images, both of which can run

> These companies have an annual churn
> > anyway and normal attrition is a lot higher than the layoff
> > numbers.

Yes, the rats have been deserting the ship for a few years now.
Many of Microsoft's top people have left, some to form their own
software companies that produce multiplatform software.

> http://finance.yahoo.com/tech-ticker/article/161886/Steve-Ballmers-En...
> orhttp://tinyurl.com/cojmml
> Steve Ballmer: "As part of the process of adjustments, we will
> eliminate up to 5,000 positions in R&D, marketing, sales,
> finance, LCA, HR, and IT over the next 18 months, of which 1,400
> will occur today. We’ll also open new positions to support key
> investment areas during this same period of time. Our net
> headcount in these functions will decline by 2,000 to 3,000 over
> the next 18 months. In addition, our workforce in support,
> consulting, operations, billing, manufacturing, and data center
> operations will continue to change in direct response to customer
> needs."

This is the first time in 30 years that Microsoft has abruptly
that many people and publicly admitted it.  Perhaps it's just that
isn't that good a liar, or isn't as abusive as Bill was.  I'm told
that Bill could
push almost anybody hard enough to make them want to quit, and be
grateful they were able to get out.

For Microsoft, it's about the cash flow.  The days of collecting $40
billion per year in trivial royalty payments from corporate CIOs and
the major OEMs has already ended.  The rate has been dropping
radically, and Microsoft is scrambling to find new sources of revenue,
such as advertising revenue and web services based income as well as
"per transaction" fees to replace the lost revenue.  They have been
trying to lock up the media market with DRM, but they got too greedy
too soon and many publishers and distributors have rejected
Microsoft's DRM model, and it's related costs.

Microsoft may ultimately end up buying up it's own consulting company
and trying to sell consulting and support services similar to those
offered by competitors like HP, IBM, and Sun, but this might also cost
them what little good will remains.

Remember, Microsoft has never sold to end users in any great
quantity.  Direct retail sales to consumers makes up about 0.2% of the
total license revenue, and these are people paying as much as 8 times
the price paid by OEMs and CIOs.

The OEMs have been bleeding red ink since 3 months after Vista was
released.  Gateway was on the verge of bankruptcy and was about to be
delisted.  Lennovo has been hurting real bad, and IBM sold off their
interest before things fell apart.  HP and Dell have had to subsidize
losses in their Desktop and Laptop PC divisions by generating higher
profits in the server and services markets (using Linux).

The CIOs are pretty much being told that if they don't cut their
Microsoft specific costs, the first layoffs will be in the IT
department.  The CEO, COO, and CFO are much better informed now, and
much more willing to explore alternatives, and much more fussy about
seeing some real ROI from every dollar spent on IT, especially every
dollar spent on Microsoft.

Let's face it.  PCs are about 100 times faster than they were in 2000,
yet actual productivity has only gone up a few percentage points, and
many feel that productivity has actually declined since the
introduction of XP.  Microsoft still can't buffer a disk drive
properly, still can't copy from one disk drive to another at more than
about 300 Kbytes per second, even though Linux systems on the same
drives get about 2 megabytes per second.

Downloads are still limited by the write speed of the NTFS file system
on 5400 RPM single-arm drives, and Windows 200x servers still depend
on *nix powered SANs to get truly outstanding performance.

Meanwhile, Linux has made it possible to reduce the need for travel,
reduce the need for face-to-face meetings, even reduce the need for
OFFICE SPACE.  IBM, for example has reduced the mobility office space
by almost 90% since 9/11/2001, and even then people are able to
collaborate using technology based on Linux/OSS collaboration tools,
such as SameTime (IRC and LDAP), e-Meetings (LDAP and VNC), and VoIP
(Codec, IRC, and LDAP).  Teams can now be disbursed around the world
and work as if they were on different floors of the same building.
They are often MORE productive, because they don't have distractions
and small-talk about politics, religion, and personalities distracting
from the core effort.

IBM has created a whole industry out of providing Security,
performance, reliability, and ease of maintenance through combinations
of OSS technologies and plug-ins, wrappers and front-end interfaces
(often Eclipse plug-ins).  IBM has even initiated some OSS projects of
it's own, including Eclipse, WebSphere Community Edition, and several
Java based projects.

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