Open Source vs. Microsoft - in the words of Ballmer

I received the following Executive Briefing from Microsoft CEO Steve Ballmer comparing an enterprise business strategy centered on Microsoft products versus migrating to Open Source (Linux platform, in particular).

Having worked with many Fortune 100s I realize Ballmer's points are generally correct - large enterprises have made significant investments in their Microsoft environments, their employees are familiar with these products, and so there are huge barriers to migration - especially in this still early dawn of there being choice in the marketplace.

But, having attended the Open Source Business Conference last fall and hearing the opposite messages from Open Source leaders and Fortune 100 CIOs, I know there is a major change happening in the long term evolution of IT, and that is toward open source.

That said, I wanted to point out an observations from Microsoft's lengthy defense of their business value - there is high value under met demand for people who understand open source, and so an opportunity for people in Northeast Ohio to become valuable in the global market[lace by becoming open source savvy:

- All 14 companies said it
was difficult finding qualified Linux personnel in the marketplace to support
their Linux projects. When they did find third-party help, they had less
leverage negotiating hourly rates than with Windows consulting resources.

As for me - I ditched Internet Explorer for Firefox months ago and couldn't be happier, I am experimenting with Open Office, etc., and the entire REALNEO framework is open source. When you are starting from scratch and working in a small business environment, you have freedom of choice.

-----Original Message-----
From: Steve Ballmer [mailto:steveballmer [at] ceo [dot] microsoft [dot] com]
Sent: Wednesday, October 27, 2004 3:56 PM
Subject: Customer Focus: Comparing Windows with Linux and UNIX

In the thousands of meetings
that Microsoft employees have with customers around the world every day, many
of the same questions consistently surface: Does an open source platform really
provide a long-term cost advantage compared with Windows? Which platform offers
the most secure computing environment? Given the growing concern among
customers about intellectual property indemnification, what's the best way to
minimize risk? In moving from an expensive UNIX platform, what's the best
alternative in terms of migration?

Customers want factual
information to help them make the best decisions about these issues. About a
year ago, a senior Microsoft team led by General Manager Martin Taylor was
created to figure out how we could do a better job helping customers evaluate our
products against alternatives such as Linux/open source and proprietary UNIX.
This team has worked with a number of top analyst firms that have generated
independent, third-party reports on cost of acquisition, total cost of
ownership, security and indemnification. Some of the studies were commissioned
by Microsoft, while others were initiated and funded by the analysts. In each
case, the research methodology, findings and conclusions were the sole domain
of the analyst firms. This was essential: we wanted truly independent, factual
information.

At the same time, our
worldwide sales organization is going even deeper with customers to understand
their needs and create a feedback loop with our product development teams that
enables us to deliver integrated solutions that support real-world customer
scenarios, and comprehensively address issues such as manageability, ease of
use and reliability.

I'm writing to you as a
subscriber to executive emails from Microsoft, and to other business decision
makers and IT professionals, to share some of the data around these key issues
- and to provide examples of customers who opted to go with the Windows
platform rather than Linux or UNIX, and how that's playing out for them in the
real world. Much more information on this is at www.microsoft.com/getthefacts [1].

TOTAL COST OF OWNERSHIP AND
ACQUISITION COSTS

In the past few years, you
haven't been able to open a computing magazine or visit a technology Web site
without running into an article about Linux and open source. Not surprising:
who doesn't like the idea of a "free" operating system that just
about anyone can tinker with?

But as the Yankee Group
commented in an independent, non-sponsored global study of 1,000 IT administrators
and executives, Linux, UNIX and Windows TCO Comparison, things aren't always as
they seem: "All of the major Linux vendors and distributors (including
Hewlett-Packard, IBM, Novell [SUSE and Ximian] and Red Hat) have begun charging
hefty premiums for must-have items such as technical service and support,
product warranties and licensing indemnification."

Yankee's study concluded
that, in large enterprises, a significant Linux deployment or total switch from
Windows to Linux would be three to four times more expensive - and take three
times as long to deploy - as an upgrade from one version of Windows to a newer
release. And nine out of 10 enterprise customers said that such a change
wouldn't provide any tangible business gains.

Yankee also noted that, for
larger organizations with complex computer networks, it's important to look
beyond Linux's initial low investment cost and consider all of the TCO and ROI
factors.

This is exactly what one of
our large enterprise customers, Equifax, did recently. Equifax, a $1.2 billion
U.S.-based enterprise with 4,600 employees in 13 countries, needed more
computing power than its mainframe systems could deliver for rapidly searching
the company's vast marketing database. They spent several months conducting an
internal analysis, which proved that, compared with Linux, Windows would
realize a 14% cost savings and shorten their time to market by six months.
(Equifax Case Study - http://www.microsoft.com/windowsserversystem/facts/casestudies/CaseStudy.aspx?CaseStudyID=15528 [2])

Another comprehensive,
non-sponsored study by Forrester, entitled The Costs and Risks of Open Source,
drew a similar conclusion: "The allure of free software is accelerating
the deployment of open source platforms, but open source is not free and may
actually increase financial and business risks."

In early 2004, Forrester
conducted in-depth discussions with 14 companies that had been running Linux
platforms for longer than one year to see what the costs really were. Several
key themes emerged:

- Few companies know what
they're really spending. Only five of the 14 kept detailed metrics - and each
of those five found Linux more expensive (5% to 20%) than their current
Microsoft environments.

- Preparation and planning
activities took 5% to 25% longer for Linux than Windows.

- Training for IT employees
was significantly higher for Linux than for Windows - on average, 15% more
expensive. The reasons: training materials were less readily available, and
customers spent more on training to compensate for the lack of internal
knowledge about Linux.

- All 14 companies said it
was difficult finding qualified Linux personnel in the marketplace to support
their Linux projects. When they did find third-party help, they had less
leverage negotiating hourly rates than with Windows consulting resources.

One of our mid-market
customers, Computer Builders Warehouse (CBW), came to a similar conclusion. CBW
builds computers to order for education, government, and corporate customers.
Several years ago, it deployed Red Hat and Mandrake versions of Linux to support
its corporate, retail and e-commerce applications. Challenged with high costs,
CBW subsequently migrated to Microsoft Windows Server System, and reduced its
total cost of ownership by 25 percent. It also consolidated its server
population by 50 percent, reduced maintenance time by 50 percent, and boosted
developer productivity by 200 percent. These benefits - totaling $650,000 in
savings - are dwarfed by the millions of dollars in new revenue that CBW
expects as a result of bringing a key security and monitoring product to market
more than two years faster than it could have done using Linux. (CBW Case Study
- http://www.microsoft.com/windowsserversystem/facts/casestudies/CaseStudy.aspx?CaseStudyID=15131 [3])

SECURITY

About three years ago, we
made software security a top priority, and since then we've invested heavily in
a multi-pronged effort to improve software quality and development processes,
and to reduce risks for customers through education and guidance, industry
collaboration and enforcement. I think it's fair to say that no other software
platform has invested as much in security R&D, process improvements and
customer education as we have at Microsoft.

Still, Linux has often been
touted as a more secure platform. In part, this is because of the "many
eyeballs" maxim of open source software that claims a correlation between
the number of developers looking at code and the number of bugs found and
resolved. While this has some validity, it is not necessarily the best way to
develop secure software. We believe in the effectiveness of a structured
software engineering process that includes a deep focus on quality, technology
advances, and vigorous testing to make software more secure.

A number of third-party
reports have questioned how safe the Linux platform really is. For example, a
recent independent study by Forrester, Is Linux More Secure than Windows?,
highlighted that the four major Linux distributions have a higher incidence and
severity of vulnerabilities, and are slower than Microsoft to provide security
updates.

According to Forrester,
Microsoft had the lowest elapsed time between disclosure of a vulnerability and
the release of a fix. They found that Microsoft addressed all of the 128
publicly disclosed security flaws in Windows over the 12-month period studied,
and that its security updates predated major outbreaks by an average of 305
days.

Other independent sources of
data show similar conclusions. According to statistics posted on the security
Web site Secunia (http://secunia.com/product/2535#statistics_month [4]),
Red Hat Enterprise Linux 3 has averaged 7.4 security advisories per month,
compared with 1.7 advisories for Windows Server 2003.

And as Yankee Group noted in
its Linux, UNIX and Windows TCO Comparison study, "Linux-specific worms
and viruses are every bit as pernicious as their UNIX and Windows counterparts
- and in many cases they are much more stealthy."

This was a deciding factor
in farmaCity's selection of Windows over Linux. Headquartered in Buenos Aires,
farmaCity is a rapidly growing Argentinian drugstore chain with 50 outlets and
1,200 employees. Although farmaCity's growth in recent years was a testament to
its success, the company's aging technology infrastructure had become a
hindrance to further expansion. After careful analysis, farmaCity concluded
that Windows would reduce network administration by 30 percent compared with
Linux, and would also simplify identity and desktop management. But the core
reason for selecting Microsoft was the increase in network security,
complemented by the ability to reduce patch-deployment time by 50 percent while
cutting unsolicited e-mail by half. (farmaCity Case Study - http://www.microsoft.com/windowsserversystem/facts/casestudies/CaseStudy.aspx?CaseStudyID=15269 [5])

INDEMNIFICATION

Increasingly, we're hearing
from customers that another factor in their consideration of computing
platforms is indemnification. In 2003, we looked at our volume licensing
contracts to see what we could do to increase customer satisfaction, and a top
issue we heard about was patent indemnification, which then was capped at the
amount the customer had paid for the software. So later that year, we lifted
that cap for our volume licensing customers, who are most likely to be the
target of an intellectual property lawsuit.

Today, when a volume
licensing customer - a business or organization ranging from as few as five
computers to many thousands - licenses a Microsoft product, we provide uncapped
protection for legal costs associated with a patent, copyright, trademark or
trade secret claim alleging infringement by a Microsoft product. We do this
because we are proud to stand behind our products, and because we understand
that being on the wrong end of a software patent lawsuit could cost a customer
millions of dollars, and massively disrupt their business.

No vendor today stands
behind Linux with full IP indemnification. In fact, it is rare for open source
software to provide customers with any indemnification at all. We think
Microsoft's indemnification already is one of the best offered by the leading
players in the industry for volume licensing customers, and we're looking at
ways to expand it to an even broader set of our customers. It's definitely
something businesses want to think about as they're building or expanding their
IT infrastructure.

It was certainly a factor
for Regal Entertainment Group, the largest movie theatre chain in the world. In
2001, they moved to Red Hat Linux. After evaluating Linux in their business for
several months, however, they migrated to the Microsoft platform - not only because
of lower TCO, stronger support and services, and greater reliability and
manageability, but because they were more fully indemnified on IP. J.E. Henry,
CIO of Regal Entertainment, told me that "reduced risk was a decision
factor in selecting Windows over Linux. We needed to minimize our exposure to
the distraction of potential IP infringement claims, and we had a big enough
open source presence to be concerned. With the way that Microsoft stands behind
its products, it's one less thing that I have to worry about."

UNIX MIGRATION

One of the hot topics among
enterprise IT and business decision makers today is the costs and benefits of
migrating enterprise resource planning systems (ERP) from costly, proprietary
UNIX environments to Windows or other platforms. ERP integrates various company
functions such as human resources, inventories and financials, and links a
company to its vendors and customers.

An independent, qualitative
survey of organizations that recently completed a migration of their SAP or
PeopleSoft ERP system from a UNIX environment to the Microsoft Windows Server
platform found a more than 20% reduction in the number of servers required
compared with UNIX. The survey, by META Group, found that in one large
telecommunications company, consolidation on Windows allowed a greater than 50
percent reduction in the number of required servers.

The survey also found a more
than 50 percent improvement in areas such as reliability, accessibility and
scalability; significant savings in cost management, IT staffing, performance
monitoring and vendor management; and measurable savings in technical support
and training. More than half of business function decision makers also saw
significant improvements in areas such as consistency, accuracy, reporting
enhancement and performance.

"Windows is now a
mainstream option for the vast majority of ERP projects," META Group
concluded.

A great case study is the
Raiffeisen Bank Group, the largest private bank group in Austria with about
2,600 branches. It wanted to reduce costs and provide better customer service
by consolidating the number of servers in its branches by 50 percent.
Raiffeisen investigated migrating from UNIX to either Linux or Windows. After
evaluating the possible solutions, the company found that Windows Server 2003
would provide the most economical solution along with better performance, while
giving bank employees an integrated view of customer information that they
needed to improve customer service. (Raiffeisen Bank Group Case Study - http://www.microsoft.com/windowsserversystem/facts/casestudies/CaseStudy.aspx?CaseStudyID=15519 [6])

One of our mid-market
customers had a similar experience. Grand Expeditions is a consortium of luxury
travel companies that significantly reduced its Web development and hosting
costs, and improved site reliability and performance, by moving from a
combination of Linux- and UNIX-based servers to Windows Server 2003 and the
Windows Server System. The new system was up and running in just 60 days, and
is saving Grand Expeditions $200,000 a year. (Grand Expeditions Case Study - http://www.microsoft.com/windowsserversystem/facts/casestudies/CaseStudy.aspx?CaseStudyID=15397 [7])

IN CLOSING...

There is no question that
customers are benefiting today from a healthy, competitive IT industry.
Competition requires companies to really focus in on what customers want and
need. At the same time, customers have a clearer opportunity than ever before
to evaluate choices.

For example, BET.com, the
Internet portal created by Viacom subsidiary BET Networks, did an in-depth
comparison of Red Hat Linux and Windows Server System. They found that Windows
offered 30% lower TCO, was more secure and reliable, and enabled quicker time
to market. As BET.com's CTO, Navarrow Wright, said: "When I looked at all
the costs - not just the straight price of software - a Windows Server
System-based solution made better financial sense than sticking with our Sun
and Oracle environment or switching to Linux. We decided to migrate the whole
enterprise from various software vendors to standardize all of our software on
Microsoft."

By implementing Windows
Server 2003, Windows XP Professional, Office Professional Edition 2003,
Exchange Server 2003, Content Management Server 2003 and Visual Studio .NET
2003, BET.com conservatively estimated that its workforce will increase productivity
by 25-30%, while saving significantly in licensing and redevelopment costs.

As organizations
increasingly rely on IT to perform mission-critical functions, and with
complexity a growing challenge, choosing the right computing platform for the
long term can make the difference between profit and loss, and between future
success and failure. And it's pretty clear that the facts show that Windows
provides a lower total cost of ownership than Linux; the number of security
vulnerabilities is lower on Windows, and Windows responsiveness on security is
better than Linux; and Microsoft provides uncapped IP indemnification of their
products, while no such comprehensive offering is available for Linux or open
source.

The vision and benefits of
an integrated platform are what distinguish Microsoft's approach to software.
The Windows platform today offers an unmatched level of value, applications
availability, simplicity, security and productivity. For Microsoft, this is
truly a cross-company effort that requires the server and client operating
systems to seamlessly deliver great usability and manageability features,
applications that deliver compelling scenarios, and tools that enable
developers and ISVs to easily and quickly build new applications on the platform.

It's important that
customers have all the information they need when making critical and expensive
IT decisions. If the evidence at our www.microsoft.com/getthefacts [1]
Web site doesn't sufficiently convey the benefits and value of the Microsoft
platform, we want to hear from you so we can work even harder to get that
information to you. If you would like to have a more detailed discussion about
your company's IT needs, email Martin Taylor at martinta [at] microsoft [dot] com.

Steve Ballmer