Microsoft Checkup

More bad news for Microsoft (Nasdaq: MSFT), and as usual it comes on several fronts. (Upfront statement of bias: Yes, I'm enjoying it.) First of all, Windows is starting to lose entire countries to Linux.

The French government is debating a law that would make Open Source software mandatory for all government computer systems, and in a socialist country like France there's very little industry that wouldn't be strongly affected by such a law.

Between worries about U.S. cultural imperialism, the black eye of Microsoft's antitrust trial, fears the U.S. government has somehow hidden backdoors in closed-source software that allows the feds to spy on French communications, and a general philosophical bent towards "libertie, egalitie, etc.", this seems like a fairly obvious move for a country with an official language institute to keep English words out of daily use by French speaking people.

China has already officially come out in support of Linux as its operating system of choice, for many of the same reasons as France.

Germany's recent legal news is slightly different, but still a setback for Microsoft. A German appeals court recently ruled that Microsoft can't control how people sell its software. Apparently an "author" like Microsoft only gets to exercise its rights of authorship once, meaning they can't stop people who legally own their software from reselling it, even if the software is marked "for sale with a new PC only."

The European Commission as a whole is still running its own antitrust probe against Microsoft and its investment in a U.K. cable company on antitrust grounds.

But probably the most interesting recent news comes from Sun Microsystems (Nasdaq: SUNW), which released its Microsoft Office-compatible office suite, StarOffice, under the GPL, the same Free Software license that Linux is distributed under. Linux distributors like Red Hat (Nasdaq: RHAT) -- the leading U.S. distributor -- SuSE (the leading German distributor), and TurboLinux (the leading Japanese distributor) now have a free office suite to bundle with their operating systems that can exchange files with Excel and Word. Importantly, it's one that can take advantage of the same collaborative development mechanisms the Linux operating system and the Apache Web server both profited from.

Apache is another thorn in Microsoft's side. The Open Source Web server continues to gain market share, up another two and a half percentage points (to 62%) in the past month according to a Netcraft survey. Wired Magazine recently noticed that part of The Microsoft Network itself runs under Apache instead of Microsoft's own IIS Web server. And of course Microsoft still hasn't managed to replace Apache with IIS at Hotmail, despite repeated attempts.

Apache's increasing dominance of the Web server market is more interesting when you note that Microsoft's next "bet the company" strategy is something called Microsoft.net, or moving all of its software from the desktop to the Web. Technology writer Mary Jo Foley of ZDNet pointed out that this is what Novell tried to do a while back with its DENIM project, and a half dozen other companies are already doing this sort of thing. But at the moment nobody (not even Microsoft) seems to know what the "Microsoft.net" initiative actually IS, besides a new name for the "Next Generation Windows Services" (NGWS) project. It's still vaporware, several years (at best) from becoming reality.

Whatever it is, the research firm Gartner Group (NYSE: IT) considers it vital to the future of Microsoft. This could be because Microsoft has been unable to derive any revenue growth from its products recently, DESPITE the launch of Windows 2000. The company has only held off reporting shrinking net income with the help of its investments, and by playing games with its options and taxes. (For those of you who didn't like the article I did on that subject back in February, perhaps you'd prefer the cover story the New York Times did on it last month?)

Microsoft needs to transition over to a subscription model because getting a consistent revenue stream by selling software involves convincing people who already have software to replace it. Selling upgrades means constantly coming up with better software, and that's something Microsoft simply isn't any good at, even WITHOUT real competition in the marketplace from Free Software like Linux. To grow, Microsoft needs to get people to pay for the same software over and over again, and the only missing ingredient there is "what's in it for the consumer?"

In other Rule Maker news, optical networking components maker JDS Uniphase (Nasdaq: JDSU) soared more than 15% in after hours and early trading on news it's being added to the S&P 500. The San Jose, California company, which announced plans to buy fiber optics laser manufacturer SDL (Nasdaq: SDLI) last week, will replace outgoing retailer Rite Aid (NYSE: RAD).

- Oak

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