Microsoft executive Martin Taylor's schedule is packed with meetings like the one in June when he met with representatives from French drugmaker Aventis in his Redmond, Wash. office. Aventis has tied together groups of computers running not Microsoft's operating system but the freely available Linux. These high-performance clusters can analyze proteins at blazing speeds. "That's great for Linux," Taylor said cheerily, at the time.
That same week -- by coincidence, the company say s-- Microsoft announced plans for a new version of Windows software to handle exactly the kind of high-performance computing Aventis had set up. Says Taylor now, "I'll knock on their door in a few months so they can check out our stuff."
Taylor, 34, is Microsoft's top Linux strategist. He speaks regularly at conferences for open-source programming, so called because anyone can examine and make changes to the underlying source code. (The guts of Microsoft's software, by contrast, have long been closely guarded.) He reads Linux-themed Web newsgroups daily and often phones around to Silicon Valley investors who are funding open-source software.
Entrepreneurs in the industry smile at the mention of his name because they know, for one thing, that Taylor is a straight-up, nice guy, but also that his real job is to better understand Linux so Microsoft can do a better job of crushing it. In 2001 Microsoft Chief Steve Ballmer likened Linux to "cancer." Now, says Taylor, "Linux is going to be around forever. We've got to understand it."
A different kind of opponent
Just as Microsoft has gone through a wrenching transformation from a combative bully to a mature corporate citizen -- the recent cash dividend of $32 billion, the end of its stock options program, a settling of old scores with Sun Microsystems, Apple Computer and dozens of federal and state trustbusters -- it is changing its approach to Linux.
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Linux is a different kind of opponent. It's not a company to bash, but a software movement with the backing of the entire tech industry. IBM invests billions in open-source software and is backing the two leading Linux distributors, Red Hat and Novell. (Yes, there is revenue in free software; these companies get money supporting Linux.) Oracle has most of its developers coding on Linux. Venture capital funds are spawning dozens of open-source upstarts that threaten to chip away at Microsoft's new areas of growth, like e-mail security and mobile software. IBM, Hewlett-Packard and Dell all now sell boxes preloaded with Linux or Windows. Even Intel, which has been joined to Microsoft's hip since the dawn of the PC era, supports Linux running on its Pentium processors.
Microsoft has finally met its match against software that is largely downloadable for free. Investors discount it into the stock price. In a private meeting with executives in May, Ballmer griped that Microsoft's profits have more than doubled in the past six years, but the stock, at $29, is right where it was then. "Linux creates a cloud of uncertainty over Microsoft. Every time Red Hat reports earnings, Microsoft seems to take a hit," says Goldman Sachs software analyst Richard Sherlund.
The reality is a bit less dire. Microsoft's revenue climbed 14% this year to $36.84 billion. What Linux is doing is taking away greater opportunities. Few companies running Windows are switching to Linux; most of the converts come from Unix systems supplied by Sun, Hewlett-Packard and IBM. But Linux is doing well in server software and threatens serious inroads in Microsoft's desktop monopoly. In the next two years Linux server revenue will grow $2.2 billion, while Microsoft's will grow $2.5 billion, according to research firm Gartner. Linux at some point could be good enough to run home PCs. It has just a 3% market share for desktop software, mostly in schools and overseas (that's more than Apple's). Linux vendor Novell is now rolling out Linux for its own employees' PCs and has 18 customers signed up for trial runs.
Taylor is fond of pointing out that the battle against Linux is an increasingly familiar one. "Before, Linux was this cloud we didn't get, now it is Red Hat, Novell, IBM. We know how to compete with companies. I was high-fiving everyone I could find when Novell bought [German Linux distributor] SuSe. We already won once against Novell."
Inside Microsoft Taylor is building a network of information and relationships aimed at overpowering the rival operating system. His attack spans multiple levels of the Redmond, Wash. empire: product development, marketing, sales and even customer demonstrations. In a building where Microsoft hosts trial runs of its software for customers, Taylor now has 50 servers out of 500 devoted to Linux.
Pushing 'facts, not religion'
His big move so far is an information campaign. Twenty-nine operatives around the world convey his anti-Linux message to Microsoft's sales force and relay reactions from customers. "We're never going to get blindsided by the technology. Now I know what deals we're winning or losing and why. Before, I found out about this stuff when a reporter called," says Taylor.
In January Taylor poached one of IBM's former Linux technical leaders, William Hilf, to test 20 versions of open-source software in Redmond. Hilf two years ago was in front of audiences touting the cost effectiveness, reliability and performance of open-source software. Nowadays he's working the Microsoft spiel: "There's no set architecture in Linux. All roads lead to madness," and "the devil is in the details. This stuff is not easy to run."
Microsoft has funded 13 studies over the past year comparing Linux with its own products. Guess what: All of them come out in favor of Microsoft. The studies are generously referenced in an advertising campaign dubbed "Get the Facts." Can Linux really handle crucial areas such as security and e-mail? The Microsoft people are ready with answers. Taylor records quarterly "drive-time CDs," a quasi-inspiration tape for Microsoft resellers to listen to while driving to visit customers. He has Microsoft's salesfolk taking exams to qualify for certification as Linux experts.
"I just want the decision to be based on facts, not religion," says Taylor. "People are saying, 'It's not Microsoft, so it must be great.' Tell us what Linux does that we can't do. Don't tell us you're deploying Linux just because you can."
The strategy works for customers like BET, the black-entertainment subsidiary of Viacom. Tech chief Navarrow Wright switched BET's Web site from a Sun system to Microsoft's after trolling through the data. But some Microsoft resellers don't bother with the surveys. "I'm not sure how relevant this stuff is," says PCMS Datafit's Matt S. Scherocman. One Microsoft customer, ADC Chief Information Officer Jamey S. Anderson, agrees: "You don't know who's paying the bills. You can't trust the surveys."
Sowing doubt about patents
Microsoft is actively sowing uncertainty and doubt among potential Linux customers over who, if anyone, owns the intellectual property behind open-source software. In May 2003 it paid $21 million for software licenses from SCO, the tiny Utah company suing IBM for $1 billion for contributing code to a Linux product that allegedly infringes on its Unix copyright. Linux advocates saw it as a thinly veiled investment in the lawsuit.
At a recent gathering of venture capitalists Ballmer went so far as to suggest Microsoft might own intellectual property in Linux and assured the audience that Microsoft would pursue any violation of its own patents. Before he spoke, a fire alarm went off. "It was eerily symbolic," says a venture capitalist in attendance. "We all scattered." Microsoft denies this, and says it will not litigate.
Windows group chief James Allchin accuses Linux of being a cheap knockoff: "There's no innovation. Linux is still in the business of cloning existing technology." Allchin points to new features in the version of Windows due in 2007 that will allow users to remotely turn PCs on or off, with programs still running. Searches will extend across all data like e-mail, photos, Word. "We're creating things," he says.
And, for the first time, offering discounts of up to 60% in the form of rebates on server software and Office for businesses. "Microsoft is going out with checkbook in hand," says Yankee Group's Laura DiDio. The company is thinking about ways to sell software to price-sensitive markets, like offering Office outside the U.S. as a prepaid Web service similar to MSN's deluxe Hotmail. Previously, customers in a country like Thailand paid roughly the same for PC software as customers in San Francisco. Now Microsoft is experimenting with lower-price versions of Windows in Thailand. Microsoft execs insist this is not a sign of increased pricing pressure. "We're just as flexible as we've always been on price," says Kevin Johnson, head of worldwide sales.
Taylor, who served for two years in a coveted spot as Ballmer's assistant, has a high profile. He's been at Microsoft since college and rattles off techie jargon like value proposition and customer sat (short for satisfaction) like any seasoned Microsoftie. He claims to have shed a tear the first time he saw Microsoft's most recent TV spots featuring kids dreaming of being future astronauts and painters.
Taylor was handed a just-finished study that found Microsoft too emotionally biased against open-source code and blind to customer distrust in its own brand. "This was a real wake-up call for us. We just had to talk competitively, which we hadn't done since the WordPerfect days. I knew we had to deeply understand the technology," says Taylor.
Taylor thinks Novell poses the biggest threat to Microsoft. "They have the best opportunity," he says. Through two acquisitions Novell has amassed a hefty stack of Linux-based software that includes a server operating system, desktop and management software. Novell gives resellers up to 15% commissions on top of the usual commission on first-time Linux customer deals.
At Microsoft's partner conference in July Taylor spent four hours dining with a dozen Novell resellers for what he dubs "deeper dialogue" on Linux. Several are now signing up to sell Microsoft's server products, too. "In some number of years my job shouldn't exist," says Taylor. "If it isn't Linux, it's something else. But we'll be ready to take it on."