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Re: [ossig] (Fwd) Will Linux overtake Windows?

Hi Khye

no problem, I will send a copy to this mailing list......now I need to find some time :)


Tze Meng

On Wednesday, August 20, 2003, at 06:27 AM, khye wrote:

Hi Tan,

If you like it, you can redistribute it. If you make correction, please send me a copy. Actually, if time permit, I want to write more.


Tze-Meng Tan wrote:
excellent article, requesting permission from the author to make spelling and grammatical corrections and redistribute
On Thursday, August 14, 2003, at 03:41 PM, nsh@pop.jaring.my wrote:
From someone who appears to want to remain anonymous.

------- Forwarded message follows -------
Date: Thu, 14 Aug 2003 10:06:38 -0700
From: mail <mail@ebuinessoft.com>
To: ossig@mncc.com.my
Subject: Will Linux overtake Windows?

People always ask will Linux and opens source software prevail
ultimately? Many Linux enthusiast are too emotion string attached when
arguing whether Linux will prevail. When you are in emotion string
attached, you may become bias and the argument become unconvincing to
the one who is conscious. Therefore, I would like to discuss from the
economical view point as economic is always the most fundamental force
that shape the business world. Recently, the SCO FUD raise again whether
Linux and Open Source movement will continue to prosper. Personally, I
think this is a growing pain process for open source movement to grow
into a mature stage. Many people always confused by the external
phenomena and do not want to think deeper into the economics roots. Had
people are more sane with fundamental economics rules, there would not
be such a crazy dot com rise and crash happened. Take stock market for
example, there are so many factor that affect the stock market, some are
fundamental and some are sentimental. But the most basic one always
prevail are that follow the economical outlook.

If you are the CEO or IT manager of a company and you know that
information technologies play a very important role that shape your
company operations and process, then you should continue to read what
has change recently in the IT world environment and what are the future
trends. This discussion may give you a more fundamental outlook so that
you can make your strategic investment in IT right. All of this
prediction are based on very simple economics rules.

(1) Economics say that human will always look for resources with less
effort. In modern world the interpretation is human will always look for
things with lower price alternatives as long as the thing can fulfill
one's need and requirements.

(2) Economics say that when there is no monopoly and a lot of
competition can bring the price down.

(3) Economics say that when there is mass production (through change of
process, technology, management and etc..), the cost will come down. The
best example was by change of manufacturing process by Henry Ford. If
you change the process of car manufacturing by divide into multiple
groups and each group concentrate on one part of the process, the total
amount of car produces will be higher than everyone make one own car.

(4) Economics say that when there are many alternatives, the lowest cost
will be adopted by majorities and the higher cost. For example water,
most people drink tap water except those who are affordable drink
mineral water.

First wave: Transformation of vertical system to horizontal system

Before the horizontal system era, the IT world are dominated by big
vertical market company typified by IBM, DEC, Wang and etc. These
company are typical vertical system company as they manufacture the
hardware right from processor to the whole machine, software from
operating system to application, sales distribution and support all by
the same company. At that time, IT is a very expensive thing that small
and medium size companies can only dream of but cannot afford. Who has
ever dream of buying a mainframe and put in the home? The name of the
game during this era was innovative product and idea and furious
competition for first sale to have the long term advantage. The problem
with this type of vertical market was a. Higher cost b. No
specialization because have to become master of all trade c.
Inefficiencies due to lack of competition. Definitely, this violate
rules 1) & rules 3), someone who have the insight have seen the
opportunities of moving to horizontal system market. Paul Allen and
Bill Gates was among the visionaries when they saw Altair built. They
have the vision to bring the computing power to the home.

Intel moving into the microprocessor business was mainly forced out by
Japanese in memory chips business. After Intel mass manufacture the
processor, a new type of economic arise and the whole IT world begin to
morph from vertical to horizontal model. The process was growing very
slow in the beginning but growing exponentially at the end. The big
winner of the horizontal market are so many: Microsoft, Intel, AMD,
Compaq, Dell, HP, ...Most of those vertical market become the biggest
loser and most of them have diminished except a few survive. This is
nothing new but just how the 3) apply on IT world. The end results is
benefit for all human since more people can afford to have computer. US
is the most reward reaping country from vertical market economics but
start to spread some benefit to other countries in horizontal market

However, some businessman of the horizontal system take advantage of
this new economics waves and become the monopoly of the industry. The
best example is Microsoft. Operating system is the core component of
software just like microprocessor is the core component of the hardware.
The vertical market can be morph to horizontal system mainly due to
competition in hardware prices( Intel have to fight with AMD, RISC ...).
But on the software side, due to the monopoly of Windows operating
system, Microsoft have additional competitive advantage to grow into
other areas of software. Some of the best examples are office suite.

Although the transformation of vertical market into horizontal market
create competition and cause the dropping of hardware prices, the
software prices drop mainly happened only at the beginning stage while
there were no monopoly. With Windows monopoly, Microsoft further extend
their battle into various areas of software, from developer tools to
client side office suite to server side software such as database, group
ware, web server, application server, and the latest moves are business
application software. While most of other software developer's software
are port to various platform like UNIX, Microsoft mainly only do the
core software on its windows platform. This is because Microsoft try to
create a vertical software framework to further extend their monopoly.
With software especially Windows operating system monopoly, the
Microsoft software prices mostly increase or maintain at the same level
only while hardware price are dropping everyday. The most obvious one
was the licensing 6 scheme which tried to use monopoly to lock the
customer. Microsoft forget how they win the war was through volumous
sales and low pricing.

The most important failure of this model is it violates Moore law. One
important meaning of Moore law is human need cheaper computer power
every one and the half year. While hardware price competition make
computer power more affordable every year, software price become the
major hindrance to the even wider acceptance of computer. Do not forget
that hardware and software are Ying Yang thing.Both need each other to
survive. If some frequently used software like Windows or Office suite
pricing has become stagnant, it show a bad example for other software
vendor to follow. This violates rules 2) & 4) but nobody dare to
challenge Microsoft monopoly and marketing might until some groups of
open sources people come out with a new philosophy of software while do
it just for fun. Little did Richard Stallman, Linus Torvald and groups
of open source contributor realize that they have lit a small fire that
burn the whole forest : a open source revolution

Second wave: Transformation of proprietary system to open system

Definition of good and evil: If the motivation, method, result of one's
action benefit for oneself and also the public or whole world ( human
and all lives on earth), then it should be defined as good. If the
motivation, method, result of one's action benefit for oneself only by
sacrifice the benefit of the public or the whole world ( human and all
lives on earth), then it should be defined as evil. You can judge for
yourself SCO act is. Intellectual property and patent should be used to
improve and not to disturb technologies growth in the long run.
Intellectual property and patent has been misused to amass individual
wealth and cause the poverty of public. The role of government should be
the guardian of public interest.

Opens source license such as GPL and LGPL are very good licensing scheme
to promote creativity and software technology growth while protecting it
from misuse of patenting, manupulating, embrace and extend and etc.
Microsoft famous tctics is embrace and extend. With GPL, they cannot do
that. Another good thing GPL and LGPL is that it can help to solve the
economics problem of equal(or better) distribution of resorces and
digital divide.

The open source initiative have many different models. Some have very
strict requirements for the derivatives work while some are not.
However, this new philosophy of software is very simple: to share the
source code and invite other to join to use and improve on it. Most
importantly, Linux and open source revolution are fulfilling Rules 1),2)
3) & 4) and the impact of this change is too tremendous. Besides, Linux
and some successful open source project are very addictive software.
After one person know how to use it and tweak it, one will seldom switch
back. There are also many factor that also make this become a 10X
change. Ironically, one of these is its nemesis: Microsoft.

If you ever read the book "Only the paranoid survive" by Andrew Groove,
then maybe you will be able to grasp the impact of 10X change. In his
book, Andrew Groove further develop Michael Porter 6 competitive forces
of business by adding the magnitude of change. If a change force is a
10X type, then any business affected by this 10X change force will be
like facing a tsunami. Among 6 type of 10X change, the deadliest one are
the one that "possibility that what your business is doing can be done
in a different way". Transformation of vertical system to horizontal
system is a good example. Internet revolution is another strategic
infection point. Transformation of proprietary system to open system is
the next 10X change. The magnitude of 10X change is a uncontrollable,
macro-economical change that nobody can stop. The size is too huge that
not any single entity can prevent it from happened. The wise move when
facing this type of 10X change is to take opportunities to ride on the
wave instead of sunken by the wave by going against it.

We can learn the painful lesson by of IBM by seeing how IBM almost
collapsed by this type of 10X change. In the beginning of the wave of
transformation of vertical system to horizontal system, IBM was at its
peak times. They have swiped out most of their competitor in their
vertical market playing field. They predicted that their mainframe
business will continue to grow and by end of decade their revenues can
achieved 100 billion. They also think that micro-processor and PC is
like a toy and will only be used by hobbyist or geek. As they cannot see
the impact of 10X change, they outsource the operating system to
Microsoft. By the time they realize and want to create another
competitive operating system - OS2 is too late. The rest is the history.
If without the replacement with Louis Grestner from outside IBM, who is
more market orientated and shift the strategy of IBM from mainframe to
services, today we may not hear of IBM anymore as extinct like a
dinosaur. This is how this 10X change can bring the impact to even the
strongest resources, brightest people company of the time.

Ironically, it seems like history repeat itself. What Microsoft have
risen on by taking opportunities of riding this 10X change to kill IBM
in nineties is being used back by IBM to fight back Microsoft monopoly.
Microsoft today facing of Linux and open source is very much alike IBM
faced PC. Both are at their peak time after have won most of the battle
with their competitor, win in courts to prevent breakup, monopoly
position in their old structure, lobby in congress, abundant of cash,
hiring the top smart peoples and etc... It is still early to tell what
is the ending story of Microsoft but we can safe to predict that the end
results of Microsoft is very much depend on Microsoft go against the
wave of change or join into the same open source bandwagon. However,
always is the case that CEO or top management is the last one to know
the change. It seem like they still fallen into their intelligence traps
by finding all kind of excuses to resist the change. Actually, the more
successful a participant was in the old industry structure, the more
threatened it is by change and the more reluctant it is to adapt.

Before Microsoft realize that this Linux and open source revolution is a
10X change, they will do a lot futile resistance and struggling act to
resist the change. Some of this can be clearly seen from last few year
until now. In the very beginning, they treated Linux like a toy and this
force is not in their radar. When Linux make some appearance in the
media, the Halloween paper come out. Then, when the successful IPO of
some Linux companies, they begin to attack. With more and more vendor
begin to see the potential of Linux and port their software to Linux,
the Linux grow rate become accelerated and Microsoft attack become
tense. "Communist", "un-american",,,etc. Comparison of TCO...and the
latest one attack the heart of Linux by SCO. In my view, all these
actions are futile attack. The more Microsoft attack, the more awareness
and propaganda they are creating for Linux. Microsoft cannot stop the
tsunami of change. They will have to pay the hard price if they cannot
learn from IBM painful lesson by continue to resist to change.

A very simple question: Do you think those who have used or using Linux
will change back to windows even if SCO win in courts (The chance for
SCO to win in court is too low when they face IBM)? People will just
modified, recreate a new even better OS (when you know how to create
something in the first time in difficult way, the second time become
easy) or change to use BSD. Will these people move back to Microsoft,
very little. When you enjoy something which is better and cheaper, can
you go back to buy something not so good and more expensive? When you
taste freedom, can you go back to restriction? If Bill Gates and Steve
Ballmer do not want Microsoft to become another Apple (Apple become a
niche market vertical model PC player after lost the market share due to
its vertical model and higher cost), Microsoft should port all its
software to Linux before it is too late. When it is too late, you have
too many competitors. Maybe history have to repeat itself again. Maybe
the old top management have to step down and the new management only
have the gut to change. We will see.

Many people also say that this Linux will kill Sun. Yes and No. Yes, is
because with Linux and Itanium and Opetron become like commodities type
of thing. Just like the demand for NT server will decrease, the demands
for Sun workstation and low end server will become less because it will
be replaced by Linux. However, when come to high end server, they still
have the niche market. Do not forget Sun for all the while has been
similar like IBM type - a vertical market tendency type. Has all
vertical market system died? No. Because there is a very niche and small
demand for vertical market system. Similarly, Sun high end server or
mainframe or super computer still have their own niche market demand.
The high growth rate of Sun during the end nineties can be mainly
attributed to the dot com chase and switching of focus of competitor to
NT. So, dropping of revenue is also a natural pull back after the dot
com craze stop.

The dangerous threat to Sun is that the management may not know how to
adapt to this open source revolution because they survive in the
vertical market model. If they still do not change to the mass market
acceptance pricing, Sun will survive but only in a niche market share.
If Sun want to take opportunities of Linux revolution, Sun should learn
the economic model of horizontal market - price for what market will
bear, price for volume. In the long run, Sun should only focus the
Solaris on the high end and save the cost by replace Solaris with Linux
and Opetron and Itanium on workstation, low end and mid-range server.
Sun should focus on how to bring the high end server cost down by mass
producing and outsourcing it. One way to save the cost is by outsource
Sparc processor. The high product price to fund many R & D on Sparc are
too high to be bear by the common market.

The smartest move by far currently is IBM. The move to Linux can be
considered as one of the best strategic move taken by IBM. IBM not only
intend to consolidate all its server line with Linux and Java, it also
use Linux as a weapon to fight back with Microsoft. Never in IBM history
has this best opportunities to save cost by consolidate it software
product on Linux and Java. IBM has the most complete range of product
for different size company requirement in term of hardware and software.
When a company grow, it can take from x series to p series to z series.
What IBM should do further is continuously lower the product price by
cutting cost to create more demand.

According to Andrew Groove who has made Intel the champion of horizontal
market model, the three basic rules to be successful in the horizontal
market are:
1) Do not differentiate without a a difference. Do not introduce
improvements whose only purpose is to give you an advantage over your
competitor without giving customer a substantial advantage.
2) In this hypercompetitve horizontal world, opportunity knocks when a
technology break or other fundamental change come your way, grab it. The
first mover will have the time advantage to gain market share.
3) Price for what market will bear, price for volume and then work like
devil on your costs so that you can make money at that price.

I think these 3 basic rules still applied to open source software model
and services. The difference may be the intensity. The intensity may be
10X greater than the previous one. For example is the price of the
software. Previously you may charge 1000, to win in open source model,
maybe you can only charge 100 (you can also reduce your software
development cost through open source), and the rest you can recoup by
offering services. One of the successful model of this is Mysql. If you
analyses it, the moving of vertical model to horizontal model mainly
create competition for hardware. Software price still at the high side
due to proprietary nature and worst case is monopoly nature.

Another common mistake most software vendor made was the same pricing
for every country. To buy a copy of software may be 1/20 of monthly
salary in US but may be 1/4 of monthly salary in third world countries.
If McDonalds, movies, books and etc sell the same price in the third
world countries as in first world countries, can they become so popular?
Software vendor must realize that software economics is different from
hardware. Unlike hardware, software economics is more similar like
making movies. The development cost is high and cost to produce extra
copy is too marginal and extra copy mean extra profit. The most
important is to hit the sweet spot pricing. Pricing that affordable and
can be popular. Open sorce can reduce the development cost while support
can be channel to another party. One way for commercial software vendor
to adopt open source model while still can survive and prosper may be
using this strategy. Sell the cd or package at very low price while
providing services. Another way to promote open source contribution and
to recognise open source contributor is to create Nobel prize awards for
open source software.

How to know the advent of Open Source software is a noise or real 10X
change? One very simple way is to see the rate of growth year by year.
Just like the grow of Internet, the rate of grow of Open Source software
every year is greater than previous year.

With this new Linux and open source revolution, it start another new
economics again and it will make those who has been the successful
monopolies at the previous economics decline. The process has already
begun. So you better take your step.

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