Falling profits forced Microsoft's open source hand

The monopoly days are dead. But better days may yet come, if Microsoft can learn to monetize like its new competitors have.

I have read a lot of stories lately about Microsoft's latest moves on open source (even written one). I have read a number of stories about Microsoft's disappointing earnings.

I have yet to read anyone connect those dots. But now you will.

(Image from Graphicshunt, which claims "the biggest selection of Microsoft XP flag backgrounds and wallpapers on the Internet!" Certainly it has some pretty ones.)

Open source is great for customers, for users, for computing, for competitiveness. But if we have learned anything in the last decade it is that open source is bad for vendors.

The savings from open source flow to technology buyers. Sellers lose out.

Microsoft sells technology. It's very good at this. The distaste many have felt for it over the last decades has been over the monopoly rents it was able to charge because it was so good at its business.

Open source broke open this monopoly. It drove prices for mature software down to zero. Critics charged that open source could not innovate, but in business models it has innovated plenty.

Some analysts now think Microsoft's only choice to restore profitability is to get smaller, as the newspaper industry did a decade ago. Software is like cigarettes, the thinking goes. The top line has a ceiling, one that is falling, so get the P/E down and milk the asset for the shareholders until the cow dries up.

Open source offers other ways out. IBM is pursuing services. Google and Amazon are pursuing the cloud. Red Hat is pursuing support. Once the present upgrade cycle is complete, Microsoft must find its own way in this world not of its invention.

The first step in that journey has already been taken. Microsoft is integrating Windows with Linux. Now it must take further steps, and start making serious money from all those things it has been dabbling with over the years -- advertising, mobility, interface innovation.

The monopoly days are dead. But better days may yet come, if Microsoft can learn to monetize like its new competitors have.

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