Saturday, October 27, 2007

I have seen the future, or, why Microsoft needs to wake up

I hate to be a party pooper the weekend that Microsoft is finally seeing a rally for their share price. But some thoughts arise about the situation, and something new in the field has crept into view - silently in the night so to speak.

First the events that sparked this round:

Microsoft announced higher than expected earnings due mostly to Halo 3, Vista and Office 2007 -- with a dash of Windows Live and other server offerings in the mix.

Just prior to the market news, we heard that Microsoft decided not to continue any appeals to their loss in the European anti-trust cases and will settle for a cash payment (which in the broad view of things is a tiny payment indeed: only 357M!) They also settled the lawsuit against them in South Korea.

So what's really driving this rally, and will it last?

I believe that investor interest has increased because of both the above events. Either taken singly may not have spiked the rally. The trouble is, as soon as the next big lawsuit comes along we'll be back into fuzzy territory and investors will once again look elsewhere, which will drive MSFT back down at worst. At best it will hover at current prices for a long period of time until that uncertainty is resolved.

Meanwhile back at the farm:

While we've been focusing on the big news about Microsoft, their battle with the EU, the states desire to renew and extend oversight from the US anti-trust case and slipping dates for Longhorn and Dynamics NAV . . . Sun has been going open source with their operating system and file technologies. That in itself is perhaps not too remarkable. What's interesting is the way a legal fight between a patent troll company named "Network Appliance" and Sun is evolving over a file system called ZFS that Sun gives away for free.

It's my belief that Sun is in the clear in this matter. They have years and volumes of prior art for the technology. The patent troll, according to some rumors, may be a shill for Microsoft (shades of SCO vs IBM/Linux) but in the end this will not matter.

The reason this is significant may be due to the way that Sun is reacting to the lawsuit. It may change the market for us forever. And if Microsoft refuses to open their eyes it may well be the turning point and endanger their future market dominance.

Sun's CEO posted a blog entry explaining the position they will take in response to the situation at . . .

Notice the URL which I left unchanged instead of href'd.

Key points:

1) Sun indemnifies all its customers against IP claims like this.

2) Sun protects the communities using their technologies under free software licenses. Even Apple . . . who is using ZFS in the upcoming Leopard OS X.

Those two points are unprecedented, as far as I know. If Sun succeeds in their counter-suit and defense against Network Appliance and if they indeed make good their promises to protect their customers, the market may see a change in how business is done concerning enterprise class software and services.