The Anything-But-Microsoft MarketThe Anything-But-Microsoft Market

The enterprise software market, and all of IT for that matter, has long struggled over two essential questions: What is the next killer app, and how can vendors get customers to pay for it? Leaving aside the first question for another column, one way to get customers to pay for new technology is to figure out a way to free up existing IT dollars for new development. And the easiest way to do that is to come up with some disruptive technology or business practice that lets companies throw out one piece of IT spending to free up capital for the next killer app.

The question of where new spending can come from is particularly important to the enterprise software market, which has been relatively successful of late in capturing sparse IT dollars and has no desire to see the trend go south again. Probably the most ambitious of all is Microsoft and its Business Solutions (MBS) group, the owners of the Axapta, Great Plains, and Navision ERP products. Microsoft's goal of growing MBS from its current $500 million per year to $10 billion in 2010 reveals an expected growth rate that has gotten competitors to sit up and take notice. There's only three ways to do this — organic growth, more acquisitions, and poaching existing competitors' customers — and not one spells anything but trouble for the competition.

The Linux Alternative

So with Microsoft positioned as the next big competitor and freeing up IT spending positioned as the worthiest of goals, it shouldn't be too surprising that enterprise software vendors are quietly pursuing Linux, open source, and other Microsoft alternatives, even as they continue to pledge fealty to the .Net deity. A number of these erstwhile competitors are realizing that getting customers to adopt non-Microsoft server, database, and, especially, desktop software could be the best way to free up the money customers need to buy their new killer apps. And getting customers dependent on non-Microsoft technology could also help competitors offset the advantages that Microsoft will undoubtedly have as its applications, server, desktop, and other software assets become increasingly intertwined and interdependent. In other words, the more ubiquitous anything-but-Microsoft technology can be in the enterprise, the more successful MBS's enterprise applications competitors will be.

The battleground for the anything-but-Microsoft option spans the entire technology stack — and doesn't necessarily require a Linux solution. SAP's announcement in November 2003 that it was cutting a deal with Sybase to make that company's database available for SAP's mid-market Business One application is emblematic of this fight. Absent an offering like Sybase, most Business One customers would probably pick up Microsoft's database offering. Instead, the new partnership helps keep the MBS technology advantage to the minimum.

Despite such deals at the database level, it's getting customers to shift to Linux, particularly in the desktop, that represents Microsoft's worst nightmare and the other vendors' secret hope. The desktop's role as the linchpin for Microsoft's next-generation enterprise software — the linkage of two major Microsoft technology initiatives, Project Green and Longhorn, will make the current ties between Windows and Internet Explorer look like child's play, which means that the most disruptive technology in the competition's arsenal may well be desktop Linux.

Getting even a small fraction of the desktops served by SAP, Oracle, and PeopleSoft to run desktop Linux could free some serious IT dollars and help shake off the all-for-Microsoft threat. Suppose you're a modest-sized SAP customer with 2,000 desktops using SAP R/3. At a conservative estimate of $3,000 in maintenance per desktop per year, you're paying $6 million to run your Windows desktops. One admittedly biased source, IBM, thinks that Linux on the desktop could knock about 50 percent off this cost. So let's play it safe and say IBM has overestimated by a factor of two. That still means using Linux could leave $1.5 million of play dough for your next project. And, in a not-so-amazing coincidence, $1.5 million just happens to be a nice average for the total acquisition cost of a new enterprisewide killer application.

How much capital could desktop Linux free up industrywide? Guessing the total number of ERP desktops is a highly ambiguous affair. SAP and PeopleSoft have bandied around an eyebrow-raising 50-million desktops each. But even if the two companies' combined total were one-tenth that size, $750 in savings per desktop would translate to $7.5 billion per year. Turn that savings into new license sales to SAP or PeopleSoft and you'll see smiles all the way from Pleasanton, Calif. to Waldorf, Germany.

This desktop savings scenario also has a major dividend with regard to competing with MBS. One of the big problems with Axapta, Great Plains, and Navision is the mass of conflicting code in the three products, the result of a ten-plus year history of acquisitions by Great Plains and Navision that has rolled up a broad range of different products and technologies. All these products have in general been closely associated with Windows (or DOS) and, to a lesser extent, SQL Server. But their association with the rest of the massive systems software stack at Microsoft has been haphazard at best.

The benefits of making all this software work together, from a single code base intimately tied to Windows, will be a hard combination for the competition to fight, when and if Green and Longhorn succeed in their goal. Linux may be the only way to blunt the threat, which is why Microsoft is fighting so hard to keep its advantage from slipping away. Hints of a dark future to come for Microsoft heralded recently from the Brazilian government, which chose to publicly support the use of Linux alternatives as a matter of technological survival. Other governments, such as the city of Munich, Germany, have also embraced open source alternatives. The Linux juggernaut has begun to take off.

Microsoft Strikes Back

But the jig is hardly up for Microsoft. For one, desktop Linux can't deliver the level of Windows compatibility that it needs to truly compete, particularly with respect to Office. Yet. And ally-by-proxy, The SCO Group, is trying to put an end to the Linux cost advantage by claiming copyright (and therefore license revenue) rights over portions of the Linux code base. (Interestingly, one of SCO's main Unix licensees turns out to be Microsoft, which according to Microsoft-Watch's Mary Jo Foley, paid SCO at least $8 million in Unix license fees last fall.) And of course, the advantage of a desktop to server to applications code base unified the Microsoft way is real. Customers need to reduce their integration and implementation costs, and if Microsoft's product plans can really deliver, the result will be a powerful incentive to sign up with MBS.

The next two years will be critical. MBS's current plans for Green and Longhorn show a 2006 delivery date, by which time Office compatibility issues in Linux may well be resolved. Locked-in to Microsoft might not be a bad idea for many customers. But a lot of Microsoft competitors think Linux might be the best way to save their market share and boost revenues at the same time. It's a combination no one can afford to ignore.

Joshua Greenbaum [[email protected]] is a principal at Enterprise Applications Consulting. He researches enterprise apps and e-business.

Resources

Microsoft Business Solutions (MBS): www.microsoft.com/businesssolutions/default.mspx

PeopleSoft: www.peoplesoft.com

SAP: www.sap.com

The SCO Group (SCO): www.sco.com