Windows 98 lifeline 'prompted by Linux threat'

The growing threat from Linux is responsible for Microsoft's last-minute decision to extend the life of Windows 98. Analysts say there has never been a better time to try and negotiate a deal on the company's software.

Various research indicates that Windows 98 is still installed on about a quarter of all PCs, meaning that if Microsoft had stopped supporting the operating system as planned, the next time that a security bug was discovered, millions of PCs would be left vulnerable and users would be left with the option of either upgrading to a newer version of Windows, or looking for an alternative. Although many companies would upgrade because their applications or hardware require Windows, a significant chunk would be free to consider alternatives, such as Linux.

Lars Ahlgren, a senior marketing manager at Microsoft, told ZDNet UK that although Microsoft has not made any money from Windows 98 for some time, the company is keen to hold onto its customers and is hoping another couple of years getting used to the Windows look and feel will tie them in for life. "The more they are used to working one way, the more [it is] likely they will want to continue working that way, so it plays to our advantage. If they move to another operating system, they will need to rethink and relearn. For some people, that is painful. This is also why so many people are resisting an upgrade from Windows 98," he said.

James Governor, a principal analyst at RedMonk, said Microsoft didn't have much choice but to extend support for Windows 98, for two reasons. First, he said, Linux has become a real threat, and although it wouldn't have swallowed up all the old Windows 98 users, it would make a difference. "I'm not going to say a large chunk of the install base would have moved to Linux, but certainly there is an alternative there -- but I don't want to overstate that," he said. Governor also pointed out that unlike the dot-com boom years, companies simply can't afford to invest in new hardware in order to upgrade their operating system: "Given the terrible state that budgets have been in over the past few years and continue to be in, we are not seeing a lot of money being freed up. Companies are saying 'this is good enough so why should we change?'," he said.

Gary Barnett, research director at Ovum, said that although Linux is not a viable alternative for mainstream users at the moment, he expects that it will be in a year's time. This means, according to Barnett, that Microsoft is going to find it increasingly difficult to maintain its unfeasibly high profit margins. "Microsoft has always publicly said it does not negotiate or do special deals on price, but the truth is that Microsoft is going to be obliged to do an increasing number of them. We have already seen it in the Asia-Pacific region, where they hugely discounted Office. Linux has a crucial role in giving people choice and also [in] curbing the incredible margins Microsoft has been making out of Office," he said.

Governor agrees that Microsoft is going to take a hit when it comes to profit margins and advises firms to start negotiating: "With licensing issues, there is no way Microsoft is going to have its own way at the moment. Microsoft is and will respond to user pressure around software pricing. If users have felt in the past that they can't negotiate, now is the time because there is some real competition in desktops and that can only be good for customers," he said.

However, Annette Jump, an analyst at Gartner, said Microsoft will continue to have a huge advantage over Linux because so many companies have long-term commitments to Windows-based applications, meaning the cost of migrating those applications would overshadow any Microsoft licensing fees: "When companies start seriously thinking about Linux, they quickly realise that it is not simple. Generally, a company or department with 1,000 PCs will have around 100 applications that would need to be moved over to Linux. They would immediately save on the cost of operating-system licence but they will have to spend money on educating their users and migrating their systems," she said.

ZDNet U.K.'s Munir Kotadia reported from London.