Linux Gaining Ground

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"We have to compete with free software, on value, but in a smart way. We cannot price at zero, so we need to justify our posture and pricing. Linux isn't going to go away--our job is to provide a better product in the marketplace."

- Steve Ballmer, CEO, Microsoft, in 2002.¹

"You're going to see it do things at the middle of the enterprise. You are also going to see increasing Linux on appliances, on small devices, in the embedded space. You are going to see it in less technically advanced shops as well. As it continues to get easier to manage, more robust, then you don't have to have a highly technical shop."

- Dan Frye, Director, IBM - Linux Technology Center, in November 2001.²

Shaking Windows

In March 2003, the world's leading software company, Microsoft Corporation (Microsoft), in an unusual move offered to open the source code of Windows - its highly guarded operating system - to the Chinese government.

Though company sources said that the move was targeted towards making Microsoft's position in the country strong, analysts felt otherwise. Analysts pointed out that Microsoft's move assumed significance in the light of the increasing support to the Linux operating system by the Chinese government. Microsoft's move was seen as being directed at containing the increasing popularity of Linux in China. Reports said that not only China, but many other countries including India (Refer Exhibit I) have been shifting to Linux for administrative tasks, resulting in a loss of market for Windows. The main reason why many governments and corporates had shifted to Linux was its free availability (Refer Exhibit II for evolution of Linux). Also, because of its open source code3 corporates were able to customize the operating system (o/s) according to their needs.

In 2003, it was reported that Linux had gained considerable market share in the server markets. With established technology firms such as Intel, IBM, HP and Dell supporting Linux, it began to get a foothold in the high-end server markets also. Analysts felt that Linux posed the biggest threat to Microsoft after the Netscape browser.⁴ With no market share in 2000, Linux captured around 13.7% of the $50.0 billion server computers market in 2002.

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Case Studies in Business Strategy Volume VI Case Study Volumes Collection

1] Ballmer: We'll outsmart open source, September 24, 2002, Zdnet.com

2] IBM's (now) not-so-secret Linux strategy, November 5, 2001, Linuxworld.com article

3] The set of computer instructions, which are translated into binary code, the form of software that computers can understand and act on.

4] Netscape Browser – Netscape Navigator was hailed as a better product than Microsoft's browser – Internet Explorer and within 2 years of its launch in 1995 Navigator gained 80% of browser market share.

5] IDC is the world's leading provider of technology intelligence, industry analysis, market data, and strategic and tactical guidance to builders, providers, and users of information technology. It has presence in 43 countries worldwide.