In this second discussion question we are asked to consider the differing strategies of two rival companies within the personal computing industry. The two companies are known primarily for creating and developing operating systems for personal computers. The companies in question are two rivals in the operating system industry; Microsoft who develops ‘Windows' and Red Hat who develops ‘Linux'. Although the lion's share of Red Hat's interest is in the operating system, Microsoft has interests in other areas, namely software development and internet search provision. However for the purposes of this discussion question, an attempt will be made to concentrate on the operating system component of the company.
One comparison between the two companies strategies was made by the CEO of Red Hat, Bob Young “you make money in free software exactly the same way you do it in proprietary software: by building a great product, marketing it with skill and imagination, looking after your customers and ....... building a brand that stands for quality and customer service”.
From a simplistic point of view it is very clear that the company's strategies are definitely contrasting to a high degree. Microsoft seems to be aiming to corner the market, dominating and simply trying to maximize its revenue. Red Hat on the other hand (in a somewhat ‘romantically rebellious' manner) seems to be aiming to create a free open source product that anybody can contribute towards.
The primary difference in strategy utilized by the rivals is that Microsoft “sell proprietary code software and give service away free” (Thompson et al. 2007) whereas Red Hat makes its money from “selling subscriptions to open-source software to large corporations and deriving substantial revenues from the sales of technical support, training, consulting, software customization and engineering to generate revenues” (Thompson et al. 2007).
Microsoft was formed in 1978 but approached in 1981 by IBM to create “an operating system for their new upstart desktop computers” (Allen, 2005). The outcome was the precursor to windows, MS-DOS which Microsoft agreed to sell to IBM however would not sell them the rights, subsequently allowing other companies to make PC's that could use the operating system “The rest is history as Microsoft.....became the giant in their market that they are today” (Allen, 2005). Microsoft's core strategy has changed little to the present day; provide a proprietary operating system that the majority of PC users and manufacturers would purchase. In contrast to this, “Linux was created by a college student named Linus Torvalds.....who was looking for a way to develop a UNIX type operating system for a desktop PC” (Allen, 2005). which has developed almost cult status throughout the programming world whereby “programmers who work on Linux in their spare time do what they do because they love it” (Thompson et al. 2007).
The Microsoft strategy is in many ways, the more ‘traditional strategy' of the two whereby the operating system is developed by experts who then ‘lock' or ‘hide' the source code and keep it proprietary in every way. The operating system is then sold to PC users and manufacturers “at relatively attractive prices” (Thompson et al. 2007). In stark contrast to this, Red Hat make the source code freely available to anybody. This source code is tested and interrogated by volunteer programmers who serve to improve the code and in some cases to ‘customise' it for their own use. Red Hat's strategy to generate revenue is by tying “support to its software - you cannot get and run the RHEL binary (linux).........without buying commensurate units of support.........through its ingenious subscription agreement” (Asay, 2006).
In further contrast to Red Hat's open-source ‘sharing' mentality, Microsoft has often been accused of ‘unfair' tactics which has in the past led to court appearances. Even though the source code is kept secret, software information that is needed by software developers to make compatible software is inevitably issued. Microsoft has been accused of giving “its (own) developers of applications software details.........before providing it to other applications developers. This tactic ensures that Microsoft's own developers have a ‘head start' on all the other software developers.
It can be seen from the examples above that the strategies employed by these two companies are starkly contrasting. Microsoft has often been referred to as a ‘bully' in the software industry who has for a long time tried to monopolise the industry. It's strategies are often referred to as unethical but have served to make Microsoft one of the most powerful and successful businesses of modern times. Its dominance can clearly be seen, in 2005 Windows was the operating system of choice for around 75% of the market. Red Hat's strategies are somewhat more original and certainly held in higher ethical esteem however the relative success of Red Hat has historically been dwarfed by Microsoft. This is echoed in the fact that in 2005 Linux only held approximately 15% of the operating system market share.
