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Microsoft: Caught between a Rock and a hard thing

I have seen many articles predicting their demise, but I think it's unlikely that Microsoft will ever go bust, but I do think they are in for a very hard time because there are so many huge forces being applied to them in both directions.

Before anyone asks, I don't hate Microsoft but I have been caught in the fallout from their buggy, insecure software on too many occasions. Luckily for me I saw what was coming and was able to jump ship before any real damage was done. In some ways I feel sad, Windows has earned me a fair bit of cash over the years but it has become a liability now - I'm tired of having to come up with endless excuses as to why Windows crashed or has become infected yet again.

Keeping my Windows PCs secure is not that hard but keeping other peoples PCs secure is very hard. Trying to tell some people not to visit dodgy web sites because they might get infected is like trying to tell them not to watch dodgy channels because their TV will burst into flames - most can't accept that a sane company would design something that feeble. And they certainly won't accept that they have to pay the anti-virus vendors for protection.

No doubt there will readers of this who will think "What's this bloke on about, I've had no trouble with Windows !". Well neither did I for many years until early 2003 when various PCs belonging to my customers and I started to become very troublesome.

Forces acting for Microsoft

Cash reserves. With around $50Bn+ in the bank, its highly unlikely MS would do an Enron style meltdown. Its been estimated that they could easily survive for at least five years before running out of cash.

Cash Cows. MS two main cash cows, Windows and Office. Both earn vast sums each year even though many their other products don't. X-Box seems to be breaking even at the moment.

Momentum / Perceived lack of choice. It does not occur to most people that they have any choice as to what software they run, they tend to use what came with the PC and nearly all new PCs come with Windows, Internet Explorer, Outlook Express and some form of Office.

Barriers to entry. Creating a new operating system is very much a "chicken and egg" situation. People don't buy an operating system for its own sake, they will buy it because of the software that runs on it. And software developers won't write software for an operating system that only a few people are using. With 90% of PCs running some flavour of Windows, there are plenty of developers willing to write software for it.

Luck. In 1981, IBM misunderstood the software market and handed it to Microsoft - who understood it perfectly.

Forces acting against Microsoft

Microsoft. I have come to the conclusion that Microsoft are their own worst enemy. They aren't content with just earning truck-loads of cash, they have to adopt the 'Highlander' mentality - 'There can be only one' software company.

Mistrust. Few people trust them any more, the "Netscape", "Sendo" and "DOS ain't done until Lotus wont run" incidents are a good example.

Security. Barely a week goes past with some virus, worm or other security problem affecting Windows. In fact it has got so bad the US-CERT has recommended that users dump Internet Explorer for alternatives like Mozilla, FireFox or Opera. I don't think it won't be long before Outlook Express suffers the same fate.

Commodity Software. Each time they release a new product, it has to compete with all the previous products, most of which are seen as 'good enough' by most people. There is a limit to how many features you can add to a piece of software before the laws of diminishing returns start to apply and the only way to stay competitive to drop the price.

Open Source Software. Why pay $400+ for MS Office when OpenOffice does most of what you want for $0 ? in fact, why pay hundreds for all your separate software needs when you can get most of what you need on a CD-ROM containing Red Hat, SuSE, Ubuntu or Mandrake Linux for free.

The Internet. Microsoft, like most large corporations doesn't 'get' the Internet. This article sums it up quite well What the Internet Is and How to Stop Mistaking It for Something Else.

Forces that were acting for Microsoft but are now acting against them

Stock options. In the 80's and 90's, Microsoft's revenue was constantly beating analysts expectations. As many employees were given stock options, they accepted low wages knowing they could earn millions later on – many did. Since 2001, Microsoft's stock price has flattened out. They now face three potential problems: 1) employees cashing in their stock options, 2) new employees, unimpressed with current stock options, wanting real wages instead, 3) Investors, realising there is little more to gained, selling their stock before it starts to drop.

Developers. MS has made it very easy to develop software to run on Windows and the more software that is developed for Windows, the more people will want to use it. They have also made new versions of Windows backwards compatible with earlier versions – until recently that is. The thing I really liked about DOS and Windows was I could run software that was 10+ years old, but that is about to change - The devastating case for Windows against Linux - is the devastating case against Longhorn and How Microsoft Lost the API War.

I guess the question on every ones minds is this: will Microsoft continue to be the the spoilt kid on the block who thinks he has a right to every other kids pocket money or will MS grow up and play nice with everyone else. Time will tell.

(C) 2004 Peter Blue

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