In-Depth

Getting the Lay of the Land

Here's an up-to-date sketch of Microsoft's competitive landscape -- including the peaks and valleys that most affect partners.

• By Scott Bekker
• July 01, 2007

There are several ways to interpret Gates' comment. At face value, it indicates that a respect for dangerous competitors drives Microsoft to innovate technologies, business models and legal strategies to protect and strengthen its position as the world's largest software company. A related interpretation is that competitors alert Microsoft to market opportunities that it's missed or otherwise tell the company that a market is getting large enough to enter. A more cynical possibility is that Gates was paying lip service to competition in an effort to persuade the world's antitrust agencies that he's a good guy and that they can stop sending him subpoenas. Then there's the view that it's like the time Tour de France champion Lance Armstrong's manager used a team meeting to hype a minor rival in the Tour de Georgia race to get his cycling star in a fighting mood. Each view has some merit, and all express truths about the company that has been like an extension of Gates' personality for 30 years.

In Microsoft Chairman Bill Gates' view, constant pressure from the company's competitors "keeps us on our toes."

For better or worse, Microsoft's place in history will be defined by its relationship to competition -- from the Netscape browser war and OEM muscling that led to the U.S. Justice Department's antitrust lawsuit; to the low-cost, high-quality strategy Microsoft has ridden to success with SQL Server; to the accusations of leveraging client monopolies to create server monopolies that are at the heart of the European Commission case. More recently, Microsoft has participated, along with IBM Corp., Oracle Corp., Cisco Systems Inc. and others, in the acquisition frenzy that has left the technology industry highly consolidated with far fewer competitors than existed a few years ago.

All this history may seem academic to Microsoft partners who are busy day-to-day selling services, pulling cable and deploying desktops. But it's useful to pull back and look at the big picture of the current competitive landscape as Microsoft sees it. Opportunities to compete in new markets that Microsoft identifies can mean new business for partners. And understanding the strengths and weaknesses of Microsoft's position in a market can also provide valuable clues about whether riding Microsoft's coattails into an industry sector is likely to be profitable for your business as a partner.

Setting the Course
Historically, Microsoft's business went from developer tools and desktop operating systems to desktop productivity tools and suites to server operating systems to messaging and databases. To some degree, each area grew out of a previous one, and Microsoft constantly looks for the next opportunity to build on existing strengths to gain entrance into emerging markets.

Microsoft CEO Steve Ballmer used his address at last year's Worldwide Partner Conference in Boston to tell partners where Microsoft wants to go next. "We as a company are entering into a set of new markets, new for us," Ballmer said. Most of the opportunities he mentioned aligned with products that Microsoft was rolling out in late 2006 or early 2007.

Ballmer identified four main markets of interest to Microsoft:

• "Unified communications, including voice over IP and mobile and other phone devices, is an extremely important marketplace to us."
• "Security: We focused a lot in the past on improving the core security in our products. ... This year we'll enter the security market in full force."
• Business intelligence, which he defined as portal, workflow, content management and collaboration solutions: "Everybody likes to call it something different, but that's really now one category, one market that we're entering in full force this year."
• "Search, from the desktop to the enterprise to the Internet, is a business of great importance and a market of great importance to us."

Those new markets are a good place to start for a snapshot of Microsoft's competitive landscape. They detail Microsoft's assessment of where it could compete best after coming out of a development stage that the company referred to as a $20 billion investment.

Beyond those markets, we'll look over the competitive landscape in Microsoft's four other core markets affecting the most partners -- client operating system, desktop productivity, server operating system and messaging -- and we'll check on Microsoft's position and competitors in the software business applications sector.

Unified Communications
Unified Communication (UC) can be loosely defined as the convergence of voice and data across any type of device. The idea has been around for a long time, but as a market, it's now gaining traction. Microsoft's growing interest in this area is potentially great news for partners in several areas. ISVs who can create unified communications apps and hardware vendors who can create devices are obvious fits. But there's potentially money to be made for any solution provider who can match the right choice from the dizzying array of UC products to a customer's specific needs.

Microsoft may be new to talking about the space, but fortunately for partners, familiarity with the company's market-share-leading messaging technologies, including Exchange and Outlook, is a necessary asset for stitching together UC solutions. And nearly every competitor Microsoft faces in any area of UC will be a partner in another part of a UC solution. Meanwhile, Microsoft has at least one critical alliance that strengthens its position in this emerging market-the Innovative Communication Alliance with Nortel Networks for contact centers and business communications server technologies.

Security
Microsoft is busily reaching into another extremely crowded field -- security. Here the company enters well behind long-established market leaders Symantec, Trend Micro, Check Point, McAfee and CA. Microsoft is among a large group of second-tier companies including Grisoft, Panda Software, Zone Labs, Kaspersky Lab and Sunbelt Software.

As with Unified Communications, Microsoft competes in some areas and cooperates with the same companies in others. The operating system application program interfaces (APIs) must be accessible to competitive vendors, although this was an area of contention leading up to Windows Vista's release. Some products Microsoft now offers on the server side, the ones that came from the company's 2005 acquisition of Sybari Software, actually use anti-virus (A-V) engines provided by other A-V companies.

Lining up behind solution provider partners, Microsoft has offered what many of those partners describe as attractive margins on its Forefront products. However, other partners say they're unfamiliar with the Forefront branding months after its introduction. Another negative: The Forefront Client products suffer from association with the Windows Live OneCare consumer security solution, which ranked last out of 17 A-V packages in a competition run by Austrian graduate students from an organization called AV-Comparatives.org. Microsoft has even made noises about having partners offer OneCare to SMB customers. Although Redmond is far back in the pack on security, continued investment riding on the ubiquity of the Windows OS and aggressive pricing or integration with existing products mean that Microsoft could surge -- if the company sustains its commitment to security over the next several years.

Enterprise Search
Enterprise search is a complex and fragmented market. Microsoft singled out Google, which dominates generalized search and came out with an enterprise search appliance that brings Google's algorithms inside the firewall a few years ago. (Google isn't the only one offering such an appliance; Thunderstone offers one as well.) Meanwhile, other vendors, such as IBM, SAP and Oracle, offer specialized search for digging into their business applications and databases, similar to what Microsoft offers for the Windows platform. Other companies offering generalized search include Autonomy, Convera Inc., Fast Search & Transfer and Open Text. Nonetheless, Microsoft has broadened the capability and breadth of its enterprise search technology with the release of Microsoft Office SharePoint Server 2007. A partner competency for search is in the works for rollout sometime this summer.

Business Intelligence and Portals
Since releasing SQL Server 7.0 in 1998, Microsoft has had an increasingly credible story in the database market, and the company furthered that position by adding and improving on business intelligence capabilities with each subsequent release. The company's inclusion in the base database license of a respectable OLAP server shook up the once-boutique market for OLAP products, and Microsoft later added data-mining algorithms and other technologies into the database. (Consider Oracle's recent acquisition of the once-mighty Hyperion for evidence of the changes in the OLAP market.) Microsoft's next version of SQL Server is code-named "Katmai," but the company's BI position doesn't rest solely on SQL Server. The Microsoft Office 2007 release, including Microsoft Office SharePoint Server, remain significant components as well.

The way Ballmer defined business intelligence last year -- portal, workflow, content management and collaboration -- matched the functional capabilities that Microsoft would later deliver in Microsoft Office SharePoint Server (MOSS). MOSS has plenty of competition for portal business. Other significant products include BEA WebLogic Portal, BroadVision Portal, IBM WebSphere Portal Server, Oracle Portal, RedHat JBoss Portal, SAP NetWeaver, Sun Java System Portal Server and Vignette Portal.

Client Operating Systems
The Windows client business is one of Microsoft's greatest strengths, which is all the more reason for Redmond and Microsoft partners to keep a close eye on it. At the moment, nothing seems likely to pull Microsoft's 90-plus-percent market share in client operating systems out from under the company, but, of course, in this industry things can change quickly. Among the most important developments to monitor is Apple's Macintosh market share, which has yet to take off despite the enormous popularity of the iPod music player. The latest Linux client darling is Ubuntu, and Dell Inc. just started offering that OS as an option on its systems. Meanwhile, as broadband access becomes more widespread, the browser's threat to supplant the OS as the essential client platform becomes more serious than it was a decade ago, when Microsoft risked the U.S. Department of Justice's ire to beat back the Netscape Navigator browser. The most worrisome browser for Microsoft recently was Firefox, which, for a while, was gaining a few points of market share every month. Microsoft seems to have slowed Firefox down with the release of Internet Explorer 7 for Windows XP and Vista.

Desktop Productivity
Every few years, a free or low-cost desktop productivity package is touted as the Microsoft Office-killer. Certain releases of Corel WordPerfect Office, Sun's StarOffice and OpenOffice.org have all enjoyed that billing at one time or another, but Microsoft Office just keeps rolling along. The current candidate is Google and its collaborative online apps, which include a word processor, a spreadsheet, a calendar and e-mail. Google has built some nice collaborative features into its desktop productivity applications. And the company's recent announcement of Google Gears, which removes the limitation that users must be online to view and use their files, could prove important. The upshot: Google's offering looks good, but dethroning Office remains a very tough task.

Server Operating Systems
Linux is making more headway against Microsoft on the server side than the client side. Linux appeared just as Microsoft was finishing its long march to overtake Unix as the most common business server operating system. While analysts say Linux' progress in enterprise networks took more direct market share from Unix than from Windows, open source Linux definitely took the spotlight off Windows' ascendance in server operating system market share.

Every quarter, the Framingham, Mass.-based IT-research company IDC measures the total dollar value of new shipments of servers -- hardware and software -- and groups the total by operating system. In the third quarter of 2004, when revenues for new servers running Windows drew even for the first time with servers running Unix, servers running Linux were way behind. But Linux recorded an eye-popping 43 percent year-over-year growth compared to the same quarter in 2003.

According to the latest quarterly tracker from IDC, things have settled down for Linux, while Windows is holding steady.

"This was the first quarter since IDC began tracking Linux server spending in 1998 that Windows server revenue has grown faster than Linux server revenue," IDC noted in a statement about its results for the first quarter of 2007. According to IDC data for the quarter, Windows server revenue was $4.8 billion, up 10.4 percent; Unix server revenue hit $4.0 billion, up 0.5 percent; and Linux reached $1.6 billion, up 10 percent.

Microsoft's efforts to protect and improve that market share extend beyond investing development resources into Windows Server 2008. The company entered a controversial financial and distribution arrangement with Novell -- distributor of SuSE Linux -- that has the open source community in an uproar. The Free Software Foundation is working on an update to the General Public License that could throw roadblocks in front of the Microsoft-Novell distribution agreement. At the same time, Microsoft is becoming aggressive about protecting more than 200 patents that it claims are violated by free and open source software.

Messaging and Collaboration
Most of the action in the worldwide messaging market takes place between Microsoft Exchange and IBM's Lotus-related products. Novell has been a distant and sinking third with Groupwise, and Oracle's messaging efforts haven't gotten much traction. IDC's estimate of worldwide integrated collaborative environment revenues for 2005 put Microsoft at $1.1 billion, IBM at $825 million and Novell at $99 million. According to IDC, Oracle's revenues were $5 million in 2005, flat from the year before.

Business Applications
The four Microsoft Dynamics enterprise resource-planning (ERP) solutions and Microsoft CRM trail leaders SAP and Oracle in the ERP market. Dynamics products have their traditional strength in small and midsize businesses. SAP and Oracle, both strong among high-end customers, seek growth by elbowing into Microsoft's SMB stronghold. Meanwhile, Microsoft is aiming higher -- into the enterprise market.

Of course, Microsoft and SAP are cooperating -- with the Duet product -- to extend Microsoft Office as a front-end for SAP's systems. Microsoft is also looking to even smaller customers with its forthcoming "Titan" release of Microsoft CRM. By adding a Software as a Service (SaaS) delivery option to Microsoft CRM, Microsoft hopes to compete with SaaS specialist Salesforce.com for certain sectors of the market.

In a Nutshell
Microsoft remains dominant in client operating systems and desktop productivity applications and holds very strong positions in server operating system and messaging markets. The company's wares are highly competitive in certain sectors of the database and business intelligence market and the business applications market. Microsoft's messaging strength makes it a player in Unified Communications, although the extent of its growth opportunity depends on execution in unfamiliar areas. Enterprise search and security are crowded fields where Microsoft and its partners will have to work hard to distinguish the company's products.