Microsoft's Market Dominance: Change Is In The Air August 6th, 1999 Today, it seems to many people that Microsoft is more powerful than it ever before. They have an incredible market share unseen since the days of Standard Oil. They have the highest profits in the industry, and some of the highest profits in the world (General Motors totally smokes Microsoft in terms of revenue -- one division of GM dwarfs MS. Despite this, Microsoft's profits are in the same realm as GM's.). Indeed, Microsoft has proven again and again that they can dominate any segment of the market they enter… Uhhhh... Maybe not Wait, I guess that's not true is it? They have not managed to dominate the browser market, thought they have made major inroads into Netscape's market share. They aren't faring too well in the multimedia streaming market either. They have been losing some ground in the server market as well, and many of the design firms that had gone to Windows NT have had enough and come back to the Mac. And by all accounts, there is an equal number of Linux web servers as there are NT servers. During much of 1998, NT was gaining enormously over Unix in the web server world. I think that the momentum has turned away from the company and that we will see Microsoft begin to lose its dominant position in the market place during the next few years. I don't think this will require a break up of the company by the Justice Department either, though many aspects of the potential changes I am talking about came directly from the pressures applied by the Justice Department's probe. For instance, Microsoft only stopped requiring manufacturers from paying for a copy of Windows whether or not it was shipped, and in some cases outright banning the installation of other operating systems through either contractual obligations or implied threat, when the Justice Department started prying. Many of those changes happened during the last 18 months of the trial and preceding investigation. There are other forces at play as well. Today, IBM announced that they were rolling out a major Linux product line aimed at the workstation/server market. This is bad news for Redmond. While Linux has been gaining in popularity for the last 24 months, what many in the Enterprise world have been waiting for is Linux support from a company like IBM. Big Blue. They may have lost control of the PC world long ago, but IBM still carries enormous weight in the Enterprise market. IBM will be able to sell a lot of Linux boxes. Every Linux box sold is one less copy of NT that is foisted off on the world. That brings us to an interesting issue. When we talk about market share, especially when we look at PC Data's monthly and annual results, we usually look at hardware manufacturers. How is Apple doing when compared to Dell? How is the iMac ranked compared to Compaq's top selling box? That tends to be our focus, but there is more at stake. What we don't usually look at is the market share for Windows. Just as with Linux, every Macintosh sold is one less copy of Windows 95/98 foisted off on the world. Apple We tend to overlook that because from our Mac-centric viewpoint, Apple is an OS and hardware and we think of them as one. For the rest of the market, the OS and the hardware comes from two different companies. When you get right down to it, Microsoft is the only real winner when it comes to PC market share. Almost every PC sold has Windows on it. In fact, Windows is becoming one of the most expensive components in a PC, because its price goes up while hardware components are constantly going down. Until Microsoft lowers the price on its OS, no matter how cheap a PC is, they will still make the same money. Who here sees Microsoft lowering the price of Windows any time soon? So while we focus on Apple recently taking away market share from the PC players, we tend to ignore the fact that Apple has also been taking away market share from Microsoft. Mind you, Apple's growth has not been so high that Microsoft is feeling any sort of pinch. Apple is still little more than a niche player, though this seems to be changing every day. Lurking in the wings is the ever-present fact that Apple will have to significantly increase their manufacturing capacity, either through their own facilities or through outsourcing contracts, in order to simply maintain their market share due to the growth in the industry. The growth of Linux, on the other hand, has so far largely not cost Microsoft too much market share, at least not in the retail world, because most retail computers come with Windows whether or not you plan on using it. Add this to the fact that most Linux-heads build their own boxes that are not counted in typical market share surveys anyway, and you can see why there has been a lack of a significant impact on Microsoft's business. Until now, that is. Now that IBM has thrown their muscle into the Linux world, Microsoft could start to see some serious erosion in their server business. This erosion will not be limited to IBM either. Other companies like Dell have also increased their support of Linux (both Dell and IBM have bought major stakes in RedHat which is preparing an IPO even now). Linux, including LinuxPPC, is about to enjoy a major boost in credibility and this will have a snowball effect on the industry. It is my opinion that even more established vendors of Unix, such as Sun, will benefit as well from changing attitudes about Microsoft. With better, more robust operating systems increasing their foothold, there will be less and less force in the business world behind the "We have to go with Microsoft because everyone else is" mentality. My Point Boom! That's the real danger to Microsoft and the real point to this week's column. Microsoft has grown to monstrous proportions in part because their own momentum has fed upon itself (and largely because every other manufacturer, including Apple, has handed them the battle long ago through blunders). I remember reading story after story (often in the form of press releases from companies anxious to show the world that they had been assimilated) about companies who had left Mac/Novel/Unix behind and switched to NT. Not once did I read quotes from these companies that said they had switched because NT offered them the best solution. Instead most quoted some pinhead Corporate Suit who said in one form or another that NT was the way to go because everyone else was going that way too. (For an excellent story, I mean a truly excellent story that I wish we had run :-), check out Macs vs. Y2K at Low End Mac. This story tells the tale of a Mac consultant who replaced 26 NT stations with 4 68k Macs! Incredible! You have to read it.) So what will happen as that momentum starts to reverse itself? Companies angry at the huge expenses that Windows in its various incarnations has cost them, especially in the area of tech-support costs, will start to switch to other systems, some of which will likely be Mac-based. In fact, I look forward to the first lawsuit from shareholders suing for a breach of fiduciary responsibility in regards to Windows being implemented in a company. Especially when Y2K finally rolls around. I digress. Change is in the air Once the tides of change start to sweep back around, Microsoft will be forced to change their business practices and make good, solid code or lose their dominance. Since Microsoft has proven fairly inept at competing on the basis of its merits rather than the force of its market share, I see them losing ground during the next few years. Of course, with Bill Gates in the picture, an extraordinary man no matter how you look at his career, it would be foolish to count Microsoft out at anything. Still, I think that we will look back at 1999 as the year that Microsoft slowly became just another OS/Application vendor. Your comments and hate mail can be sent to [email protected].