It's no secret that Linux has had a major impact on Microsoft's server business, but Microsoft hasn't said much about the potential effects of desktop Linux. That changed recently when Microsoft admitted that Linux on desktops and notebooks poses competitive threats to its Windows client business.
In Microsoft's 10-K filing last week, the software giant said companies with differing approaches to the PC market, including desktop Linux purveyors Red Hat and Canonical (Ubuntu), pose "strong competition" to Windows. Open source Web browser developers Opera and Mozilla also are eating into Internet Explorer market share, Microsoft said in the filing.
These seem like grudging acknowledgments in light of comments Steve Ballmer made last week at Microsoft's Financial Analyst Meeting, where he reiterated Microsoft's longstanding view that the Windows ecosystem offers key advantages over open source.
"We support open standards and open innovation, but you can't change our operating system. So we maintain a fixed design point in the Windows world, which the Linux community has never managed to do," said Ballmer, who described Linux as being hampered by a "chaotic design point."
In the 10-K, Microsoft also said Linux is gaining acceptance in emerging markets due to cost pressures on PC makers that have fueled the rise of lower-price PC form factors, i.e. netbooks. Particularly telling was Microsoft mentioning that Hewlett-Packard and Intel -- two of its closest industry partners -- have been "actively working with alternative Linux-based operating systems."
HP sells Linux servers, notebooks and netbooks, and Intel has played a leading role in Moblin, an open source application stack for Mobile Internet Devices (MIDs), netbooks and nettops that is now being run by the Linux Foundation.
Microsoft executives can continue to belittle Linux and open source all they want, but even small upticks in adoption have the potential to gnaw away even more of Microsoft's revenue, and the company admitted as much in the filing.
"To the extent open source software gains increasing market acceptance, our sales, revenue and operating margins may decline." Microsoft said in the filing.
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