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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Bill Fischofer who wrote (48142)	7/25/2000 5:32:18 PM
From: Rusty Johnson	Read Replies (1) \| Respond to of 74651

Linux server growth threatens MS revenue supply By: John Lettice This week's IDC report on the server market has some tantalising numbers for Linux fanciers. Linux server shipments will climb faster than the rest of the market, resulting in 2004 in Linux shipments of around 4.7 million, finally within spitting distance of Microsoft, at 5.7 million. But although this holds the possibility of Linux taking the lead in 2005 or 2006, that's not the real story - the changing underlying economics of the market are what Microsoft really has to be worried about. ... Linux server shipments will start to catch up on Microsoft, but there will remain a vast chasm between relative revenue levels, so maybe Microsoft shouldn't worry, right? Well maybe. The market as a whole will grow 17 per cent a year, with Linux chalking up 28 per cent within this. But revenues will be flat, with growth of only one per cent a year. This can partially be ascribed to the higher growth rate of Linux pulling the average down, but IDC expects a surge of shipments of upgrades to Microsoft server products, which will bring the number of shipments up but will only generate upgrade revenue. That suggests Microsoft will be pedalling faster to stand still, in a market where prices are falling and where it's increasingly difficult for it to win new customers. Smaller amounts of upgrade revenue will tend to be coming from existing customers. ... Then we've got the likelihood of packaged Linux solutions beginning to chip away at Microsoft's core server market. And of course, the .NET/rental strategy. Microsoft.NET currently seems dependent on two things; first of all, switching customers over to a services-based model, and from the look of the price indicators so far, winning more revenue from existing customers. The second part, the one that has so far tended not to work terribly well for Microsoft's server business, is to make the products so compelling that market share expands rapidly. But again, you could see the dynamics of this changing - .NET is essentially the future of the Internet translated into Microsoftspeak. If Microsoft hadn't invented it (which it didn't) it would still happen anyway. You can expect rival services based on Linux and Unix servers to compete here, and given that the services will be Web-based, where Linux and Unix are the servers of choice, you can see Microsoft having a tough time of it, and again coming under price pressure. That pressure, rather than the shipment numbers or the continuing disparity between revenue levels, is what's really important. Microsoft will continue to rake in vastly more revenue than the Linux vendors, but Microsoft is a monster that needs to eat a lot more money than Linux does, and needs to keep growing to keep the whole deal spinning. If that ceases to be the case, the monster is in big trouble. theregister.co.uk Best of luck.