Great article on Linux vs Microsoft...
GAITHERSBURG, MD (Nov. 24, 1999) -- On Friday, I
reviewed The Innovator's Dilemma, a book about
disruptive technologies that encourage start-up
companies to replace large established firms. On
Monday, I talked about "use value," which is
discussed in greater detail in Eric Raymond's book
The Cathederal and the Bazaar (which I'll be talking
about some more today). Yesterday, I explained how
network effects can create natural monopolies, and
discussed the first way I know of to compete with this
type of monopoly: participating within the existing
network to share the market.
A disruptive technology can also crack a monopoly, by
replacing the existing network with a new and larger
one. A larger network will consume a smaller network
operating in the same space, because the value of the
network increases exponentially with the size of the
network. But a disruptive technology doesn't (initially)
operate in the same space; it starts by finding a new
market with wants and needs that the old technology
cannot meet.
Because a disruptive technology can't initially compete
directly against the existing technology for the original
uses even without taking the network effects into
consideration, the only successful way to market one
is to carve out a new "roaches under the floorboards"
niche taking advantage of the new technology's
distinctive advantages. This new niche is a market the
existing technology can't fit into, and is usually too
small and low margin for the existing companies to
care about anyway. But it gives the disruptive
technology a protected base within which to develop,
and which can finance an upscale attack into the
existing value network. Since the disruptive technology
can eventually be made to serve the same purposes
as the old technology, and it has its protected base to
draw from as well, it forms a larger network than the
old technology.
The disruptive technology currently attacking
Microsoft (Nasdaq: MSFT) is the Open Source
development model. Eric Raymond's classic paper
"The Cathedral and the Bazaar" has recently been
published by O'Reilly as part of a book by the same
name. It explains how software can be developed not
by a team of highly trained professionals, but by a
loose association of hobbyists organized through the Internet as a kind of fan
club. It also discusses why this software development model often beats the
pants off of the old way of writing software.
While traditional software development is motivated by the sale value of that
software, Open Source development is motivated by the software's use value.
People who use the Apache Web server naturally want it to be the best Web
server it can be. So, if they are capable of improving it, many of them will -- in
their spare time or when they encounter a problem they need to fix. All that
time spent on hold to tech support for proprietary software companies is spent
actually finding and fixing the bugs and limitations of Open Source software.
The availability of the source code to Apache gives the technically inclined
individuals and organizations using Apache the ability to do whatever they like
with it.
Sharing the improvements through the fan club doesn't cost Apache's users
anything, since they didn't plan on selling those improvements anyway. They
just want a good Web server. The fact that it's a free download is merely a
bonus. What they really get is control over the tools they use to run their
business -- high quality tools created by people motivated by how well they
work and not how well they sell.
Apache is the server behind the majority of the websites on the Internet. In
that niche, Open Source is the dominant paradigm. To examine Open Source
as a disruptive technology, we need to look at a clean room clone of Unix that
started as the Free Software Foundation's GNU project and was completed
(well, first made independently usable; Open Source development and
improvement never ends) by a graduate student at the University of Helsinki in
Finland named "Linus Torvads." You may have heard of it; it's called Linux.
Linux started out in a "roaches under the floorboards" niche. People who
couldn't afford what AT&T and others charged for Unix but wanted to use it
anyway reverse engineered the thing and made it run on PC hardware. Then,
Linux became popular to turn old, discarded, underpowered PCs into file
servers and print servers. As the Internet (created by and full of Unix
machines) became popular, this reverse engineered Unix clone was a cheap
way to use a PC as a Web server, gateway, or firewall to hook up to the
Internet.
Microsoft's high end is the desktop, and that's the last market Linux will take
over. From the low-end machines that other operating systems were too
inefficient or expensive to use on, Linux jumped straight to high-end
multi-processor machines. As the Web became important and expensive
hardware was thrown at it, Linux was moved over to that expensive hardware
where the lean and mean efficiency required to run at all on the cheap junk
was just as valuable to squeeze every drop of performance out of the
expensive stuff.
Again, this was fringe territory as far as Microsoft was concerned. Although
they have tried to push Windows NT on the high-end for almost ten years, it
has never shipped in volumes even approaching that of its desktop home
ground. Microsoft may have been unwilling to yield any niche, but Linux
definitely attacked where it was weakest.
Linux has also had success with embedded systems, and has virtually driven
Windows CE from the field. Microsoft may have unlimited funds with which to
develop their products, but Open Source products simply cannot be starved for
cash. Their development is funded with their users' time and effort, not with
revenues from any sale. Use value again, not sale value.
If you remember FUD from yesterday, Linux is un-FUDable. As long as the
users have the source code, development will continue. And how can it go out
of business if it never made any money? Companies make money off of Linux,
of course. Red Hat's (Nasdaq: RHAT) IPO shot to a multi-billion dollar market
capitalization, and hundreds of established companies like IBM and SGI are
betting heavily on its success. But like dating services, they seek to cash in
on an existing phenomena. They dip their mill wheel in a river that's already
there, and could go on without them just fine.
Like all companies performing an upward retreat (however grudgingly) in the
face of a disruptive technology, Microsoft's profits will probably continue to
increase right up until the end as it tightens its focus on the areas that make it
the most money. The desktop is Microsoft's home ground, its strongest niche,
and where it makes the most money. It will be the last niche Linux penetrates,
and the one Microsoft will fight hardest to keep.
According to the Gartner Group's estimate, Linux passed the 10 million user
mark during 1998 and was growing at 212% annually at the time. Assuming it
slows to 100% annual growth (which it has maintained since its introduction in
1990), it will surpass the Windows installed base in about three years. At that
point, the network effects will favor Linux and hinder Windows. |
