The Emerging Dell-Linux-Apple War

Friday Mar 2nd 2007 by Rob Enderle
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As Microsoft stumbles, vendors jockey for position. But each competitor struggles with its own set of problems.

While we spend a lot of time talking about Linux vs. Windows and Windows vs. the MacOS, the real battle for the Windows desktop alternative may be the preliminary round between the MacOS and Linux. That battle really kicks off this year with Apple stepping up their effort sharply with the Leopard, and Dell becoming aggressive (with others likely to follow) with SUSE Linux (though this choice may change).

These two platforms have distinct advantages and disadvantages against each other and the winner will likely be the solution that walks away with the greatest number of advantages and the least number of disadvantages.

Let’s set the stage to see why both sides suddenly see Microsoft as extremely vulnerable, and why it may not be as vulnerable as it seems. (Realize perception rules and is driving this change).

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Problems with Microsoft in General and Vista in Particular

For some time Microsoft has been showing signs that things aren’t going well. Vista was late, and they had to delay it even more to ensure that Dell was not unfairly advantaged. From Dell’s perspective, Dell was penalized because they had a model that was more efficient than its competitors and they believe that Microsoft contributed, with intent, to them missing their quarter and having to both fire their CEO and bring the founder back from retirement.

To suggest that Michael Dell is upset with Microsoft would be to vastly understate the situation. Livid would probably be more accurate. And as we rolled to the launch, Dell in particular was becoming more and more upset that Microsoft was not listening to them and certainly not being responsive to their needs.

When Vista arrived it was incomplete. Key parts remain missing, the promised marketing plan doesn’t appear to be effective, and sales are not meeting the requirements of the OEMs who were depending on it to significantly drive up hardware sales. Microsoft lengthened the period of time that Windows XP would be supported, against the OEMs’ wishes.

At CES, after working very hard to get systems ready for Bill Gates’ keynote, the OEMs saw Microsoft’s Xbox 360 take center stage and get positioned as a media center PC-like product and a competitor for their own offerings. Microsoft has not allowed the OEMs to use PCs as Media Extenders and Xbox 360 game players so they can compete.

As a result, Dell, and other OEMs, now view Microsoft as a problem, and increasingly a competitor they have to deal with, and each is trying to come up with a way to do that individually. At some point I do expect them to organize and address this issue in some kind group fashion. Until then they appear to be trying to help create a competitor to Windows, and since Apple won’t license, Linux, ready or not, is the next in line.

Intel vs. AMD Further Setting the Stage

Dell had a similar problem with Intel, in that Intel wasn’t listening to them either, and the complexity and timing of the Core 2 Duo line created massive logistics problems for the company.

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In addition, the initial performance of the Core Duo product was so far off the mark that Dell lost significant share in critical markets to HP and others who had AMD products. Finally, AMD was being successfully used as both an anti-Dell tool by Dell’s competitors and as a way to get Intel’s attention by that same group. Dell needed to get Intel’s attention and finally concluded that AMD was the way to go to do that.

That worked – Intel is all ears. And currently, even though the Core 2 Duo problems (arising from too many versions, making it hard to stock and even harder to market related systems) are not yet fixed, Intel is listening. And Dell views the AMD effort, for now, as successful.

They – and they are not alone – want something similar to AMD to position against Microsoft so that Microsoft steps up to the plate and builds complete products, on time, with sufficient demand-generation marketing behind them, and never again singles Dell out to be punished for a Microsoft mistake.

Linux to the Rescue

While Dell has stated they would rather license the MacOS because currently, at least on the desktop, it is vastly closer to the solution they need, they have turned to Linux as the only available choice and Novell, initially, as the best vendor (most experienced with large accounts) to provide it.

Interestingly enough, it is the deal Novell did with Microsoft that significantly enhanced this selection because they needed something that would interoperate well in a Windows environment to make this work and the business buyer is the initial target. In addition, Dell was a major supporter of Netware and part of an old related alliance so the two firms have a long and successful history together.

It is in Windows accounts where Dell is disproportionately strong. And if they can use Linux migrations to offset the delayed sales for Windows Vista, or if Microsoft simply starts listening to Dell and addresses Dell’s concerns, Dell wins. If Microsoft doesn’t change and Linux can’t step up to the task Dell loses, but probably isn’t that much worse off than they are if they do nothing.

The question is: can Linux Step up?

Linux Problems

Linux isn’t really ready for the desktop. It isn’t better than Windows it is simply different, and seems to morph between limited easy-to-use client and non-compatible headache in large numbers. While it is improving it doesn’t yet interoperate as well as the MacOS does in Windows desktop environments.

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This isn’t initially a huge problem since its first success is probably going to be in mixed Linux/UNIX/Windows shops where Windows is only on the desktop. But, these mixed shops are probably owned largely by IBM and HP right now and these competing vendors are probably not going to give them up easily – suggesting this opportunity won’t last long for Dell.

In addition, the Linux revenue model is upside down from what Dell needs. They are being hit on revenue and margin. Linux is perceived as having less relative value than Windows (folks won’t pay as much for it and many think Linux should be free) and disproportionately to its actual cost. In short, people expect a bigger discount for Linux than Dell actually saves by using Linux.

If they could sell it for the same price as Windows, or ideally more, the financial incentives to do Linux would be strong. For now the opposite is true and if they cannibalize Windows sales with Linux they will hurt both revenue and margins. And even if they expand their market they will probably erode margins, making things worse.

Linux needs to be seen as on par with Windows, from a price/value perspective, and the marketing and positioning to make that happen is currently beyond any Linux vendor. And while Dell could make this up, the margins are currently too tight to provide the level of marketing cash needed to make this work.

Finally, the Free Software Foundation appears to be doing its level best to make Linux appear anti-business. Fortunately they are being fought by both the primary vendors selling Linux and Linus Torvalds himself.

This all makes it very difficult for Dell to scale the offering. And, just as if they succeeded they would drive other OEMs to Linux, if they fail they will probably set Linux back years with regard to desktop deployments. Dell is still a major bellwether and whatever happens, the result will be significant.

Microsoft’s Response

What set this up was a series of mistakes that Microsoft made over the last several years with regard to how Dell and the other OEMs were treated, coupled with the damage Vista ended up doing to Dell’s financial performance.

Microsoft’s tools are limited and if they now suddenly engage with Dell it will only confirm that what Dell plans to do with Linux had the intended result. Of course that might make Dell take a smaller position with Linux, but it won’t stop the effort and if Linux can meet Dell’s revenue and profit need (which is risky) they are likely to expand this initial offering and others will quickly follow.

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What Microsoft must do is engage the OEMs and win back their hearts and minds, and that is going to take awhile. Fortunately folks don’t like change and Microsoft is embedded with these firms in terms of hardware support, secondary alliances, and joint initiatives all of which won’t go away very quickly. In addition people generally like the status quo and Microsoft is a known entity on the desktop.

Vista will be improving over this time and Linux breakage, largely due to incompatibilities and related software dependencies, will be hard to cover up. However, if Microsoft continues to fuel the need for a Windows alternative, eventually one will emerge. Recall that replacing IBM was nearly impossible according to sworn testimony and both Microsoft and HP have largely proven that a myth over the last decade.

Apple’s Run at the Desktop

Apple is slated to make their big run at the business desktop starting in March. Leopard, their new operating system, is supposed to be vastly more compatible with Windows shops and they have supposedly addressed the one major shortcoming locking them out of businesses (there are actually three).

In the last big Windows vs. Linux vs. MacOS trial, Linux lost by a lot but Apple lost only because the platform lacked Exchange support. That is expected to be native to Leopard and iWork, which does kind of cast a cloud over Office for the Mac.

However, there are two other shortcomings that Apple hasn’t addressed: they are largely seen as a consumer vendor, and are not trusted in the enterprise space, primarily because they abandoned the corporate market a few years back. And they have no corporate sales or support infrastructure, having dismantled that nearly a decade ago.

So the MacOS is in better shape but Dell and Novell are in better shape to sell the solution. This suggests that the MacOS and SUSE Linux will be the first combatants, with the winner taking on Microsoft.

For Apple to win there needs to be at least one additional hardware vendor with the solution. For Linux to win it needs to be able to generate revenue and demand like Microsoft and Apple can; in addition it has to be more than just an alternative.

If both sides, Linux and Apple, were able to take the best of the other, the fight would be vastly more important and the winner would be able to take on Microsoft. If they don’t, they are largely self-limiting and there may never be a winner in the preliminaries, and Microsoft remains damaged but relatively safe. Of course if Microsoft wakes up and responds to the core problem, they remain the entrenched vendor with the inherent market advantage that provides.

It is interesting to note that the limitations of all three entities are largely themselves and not their competitors.

It will also be interesting to watch this, from a distance, play out.

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