Question: Licensing and the Threat Of Linux

Microsoft has traditionally been the low-cost alternative. Are you planning to adjust your approach to licensing in any way to respond to Linux?

Ballmer's Answer: Well, we're going to be the second-lowest cost guy in the market from a license-cost perspective. The free guys will be cheaper. We haven't come up with a model that works to be cheaper, which I don't like. Let's be blunt: I liked being the low-cost guy. And, we will be the second-lowest cost guy in the market in terms of the license. Now, we're going to have the best total cost of ownership proposition, I guarantee you, in every scenario at every time. And if we don't, then it's a price problem or it's a technology problem, and we'll take care of it. We're going to have the best total cost of ownership story [in] every scenario. And I mean every scenario. File sharing. Firewalling. Web-page hosting. We literally sit there and say, 'OK, what do we need to do about this?' Look at Small Business Server. I guarantee you that is the best cost-value proposition in the market, bar none. But it's not the lowest license cost. Now, the truth is it's always nice to be able to say we have the lowest license cost and we have the best total cost of ownership story, and we've got the most innovative offer. But, there's no cost structure to this open-source thing, the free software phenomenon. So if there's no cost structure, there's no price structure. There's also a shortage, in my opinion, of innovation. So you don't get the best capability set, you don't get the best total cost of ownership, etc. But if you ask about traditional competitors--Sun, IBM, etc.--if we think it ever looks like our prices are higher than their prices, believe me, our prices will come down. [Compared with] the traditional competitors, I still feel like we have the best proposition on the market. Some competitors have gone very low because they are sort of on the verge. Sometimes we won't be able to match that. But we're still very focused on having very competitive prices.

Huckaby's Response: I like Steve's answer to a relatively tough question on multiple fronts. But Steve is talking in the realities of the Microsoft product stack, which, to those savvy in the competitive landscape of technology, is a really good story across most of the Microsoft product suite. The problem is that down in the trenches, the company is waging a battle against perceptions. And perceptions are very difficult to win against. If it were simply about technology and total cost of ownership, I think we'd win on the Microsoft stack every time. In the trenches, though, we still battle the perception that Microsoft doesn't scale, which is ridiculous and proved flat-out wrong. We also battle the perception that Microsoft is not secure. Microsoft has taken a few black eyes over the last 18 months, but the manifestation of how patch management is implemented is the problem, not that the Windows client and server OSs are natively insecure. It's also tough to compete with the perception of "free." Linux is "free like a puppy," but there is still the perception that Linux is dramatically less expensive to run. Dispelling these perceptions is where we need a bit more help.

Facing the Linux Challenge
Microsoft rivals often complain that they simply cannot compete against Microsoft's marketing machine, which not only influences perceptions, but shapes and defines them as well. Or so that's how it used to be. Since the advent of Linux, things have changed somewhat. Tim Huckaby, CEO at Microsoft software partner InterKnowlogy, hopes the software giant can help allies like him set the record straight. "Fighting against misperceptions is a very difficult thing to do," he says.

Launched in 1999, InterKnowlogy was founded on the simple premise of engineering leading-edge software and network infrastructure systems on the Microsoft platform. A big fan of .Net, BizTalk, CMS, IIS, SharePoint and Project Server, Huckaby fights an ongoing battle over whether free Linux is really cost-effective. One other thing he fights: the perception that Microsoft isn't secure.

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Microsoft has taken its lumps, he concedes, but the problem is how patches are implemented, not whether Windows is natively insecure, he says. Furthermore, he says recent evidence indicates that security vulnerabilities with Linux are vast, too.

"If those genius teen-age hackers out there start picking on those guys instead of Microsoft, it could be devastating because the open-source guys just don't have the infrastructure and ecosystem to deal with it like Microsoft does," he says.