Be careful what you wish for.

Indeed, I had little idea that Microsoft Watch readers would have such voluminous and widely varying ideas about how BillG and SteveB should guide the company, from here on out. I asked for your two cents, and you showered entire piggybanks on me.

As I noted in last week's column, "WSBD (What Should Bill Do?)," Microsoft is at a critical juncture. The software kingpin has saturated the market for Windows and Office on the desktop. So now the company is attempting to plant new-business seeds that it hopes will begin to bear fruit in another three or four years.

While some readers thought Microsoft is on the right track in selecting its next-gen investments, others opined that Redmond is spreading itself dangerously thin. A couple of more philosophical readers wondered aloud when enough is enough in corporate America. They harped on recent changes Microsoft has made to its software licensing policies that have harmed some small- to mid-sized users.

But the message that rang loudest and clearest was that Microsoft needs to get its act together regarding Linux and open source.

If you have any more Microsoft investment musings to share, don't hesitate to send them to me at mswatch@ziffdavis.com.

Meanwhile, check out a smattering of reader feedback on where Microsoft should go tomorrow:

I think that one of the biggest problems that Bill Gates faces is that he is charging royalties for every computer device sold. I know that people can elect to have a refund, but what should be going on is that when the system is purchased (prior to receiving) the purchaser should be required to select the operating system. If they want Linux, they should only have Linux and NOT have to deal with applying for a rebate.

If Bill makes working with him easier, then people will tend to go his way. He should also look at renewing the hooks of allowing corporate users to use their work software at home, Legally. With the price of the software most home users cannot afford to buy his product, so they look for what they can afford.

Rick Mamula

United Grinding Technologies

Through understanding the importance of standardization Microsoft has achieved a business monopoly for the desktop and this has seen the demise of once great software companies. Microsoft is poised to do the same again with marketplace computing and not only will we see another generation of companies disappear but the potential for a total business monopoly exists.

Of all the software companies, Microsoft has seen the big picture and has a strategy in place for standardized marketplace computing and for achieving a total business monopoly in the process. What elements are they missing?

Keith Sherringham

Plain and simply: Microsoft has been in denial of its monopoly position since it split with IBM in the '80s. They continue to believe they hold their position based on the quality of their product and the loyalty of their customers. Bunk, I say.

For years, they were the only game in town, now they are beginning to face competition. They will not survive if they continue to believe customers actively chose them over true competitors (Linux for example). They will not survive if they think they can toss out ill-conceived products and expect their loyal customers to snap them up. That's not how it works in a competitive world.

Bill Anderson

Independent Consultant

WSBD Letters, Page 2

The only thing which could save Microsoft from extinction is a rock solid, mission critical stable, and bullet-proof operating system — which people in China, India, Russia, and the rest of the world can afford. Perhaps $35.00 at most to buy, never mind subscribe to. The rest of the world simply cannot afford MS's prices.

The energy in the business market has switched from MS (also from proprietary Unix) to Linux, BSD, open source and other alternatives. Right now, MS is running — like a huge flywheel — on pure momentum, and it will do so for a few years, maybe two — but the market energy has decoupled from MS, and is now driving Linux, open source and other alternatives.

Even if Linux splinters and fizzles and North America and Europe should do nothing new — which is practically impossible — these third world countries will come up with an OS that works, can be depended upon, is rock solid and bullet proof, is really cheap — and perhaps, free. Such an OS will then spread across the world.

This model exists in Linux — whose greatest achievement has been the breaking of MS's death grip upon the market — and whether Linux succeeds or not, it has set the way and initiated the future of computing.

Peter Weis

Futurist and Author of www.truehealth.org

I used to support Microsoft back in the old days of the office standards tower of babel — at least when everyone started using Word as a 'standard' and you could start to send documents to other groups, nationally and internationally with a good chance that they could read, edit and return them to you in readable format. As upgrades to Windows and Office came on-stream, there was backwards compatibility. This means for example, that I can still use many of the keyboard shortcuts from DOS Word in Office 2000.

However, now Microsoft has managed to break these paradigms *and* force their customers to come face to face with the change. Their new, over-expensive licensing forces upgrades, regardless of the business needs of its customers, and those upgrades force those reluctant customers to move to software and file formats without any backwards compatibility. This can put a business in the position of having to decide between staying in contact with customers on the old formats and extremely punitive licensing rules for failing to upgrade when its suits Microsoft.

Buying Microsoft Software has now well exceeded the 'Honey, may I?' limit for domestic and small business users. So my team is staying with Win2k and Linux and is likely to abandon Microsoft Software altogether. This despite the problems this could cause due to loss of easy access to some specialist software. We are also looking at Lindows and WINE as are many other groups.

So WSBD (What Should Bill Do)?

Bill should remember that he has *customers* and that, contrary to the opinions of his minions, the customers can now go elsewhere. There is always inertia as no one wants to change from software that they have become used to. But all my students work in Linux almost exclusively. They will go out into industry and businesses they found will not have a Microsoft licensing millstone crippling their cash flow, nor an enforced upgrade rate forcing their business plans out of kilter.

Linux will become an enabler for more efficient business in the way that Microsoft used to be. Bill has to regain that ground and look at what his customers need rather than at what is thought to be the quickest way to inflate Micro$oft's bottom line (but which will actually be counter productive).

I cannot help remembering IBM's fall, with the attempt to force Micro Channel Architecture on an unwilling industry. Bill Gates is in the process of doing just the same with Licensing 6 and Office 11. The industry has moved on and Microsoft in 5 years time will be in the position IBM was in 1994.

Ian Wilson

ERAU ATM Research Laboratory

I think one of the best things Microsoft can do is port their office productivity and back office products to Linux and join the movement. Do that and they have a prayer to be bigger, better and brighter.

Without that ... and with companies like SCO forging ahead with alternatives that customers love ... Microsoft's future is painted bleak already. The playing field has changed too often too much for Microsoft to keep pace — the MSN fiasco is a good example. They missed the Internet boat and are still trying to make up for it by losing money.

I think the shareholders of Microsoft should have something to say about the drain of billions on bad diversification investments.

Opinder Bawa

Sr. Vice President, Technology and CTO

The SCO Group

WSBD Letters, Page 3

While I am not a fan of this company, or others with (in my mind, almost less) questionable business practices such as WorldCom or Enron, I will offer them a simple piece of advice: Move away from Software Manufacturing as a primary business model.

The battle has never really been about Microsoft Windows vs. Linux (although that is an interesting skirmish to watch ;-), but business models based on Software Manufacturing vs. the disruptive technology of Free/Libre and Open Source Software.

Microsoft is seeing its two cash cows, Operating Systems and Office suites, being commoditized. In the fairly near future (5-10 years) I believe these markets will simply not exist in the form they do now, and anyone trying to make money from royalties (rather than support or related services) in this market will not survive.

Diversification is one answer, but this ignores some of the fundamental changes in the market. I believe that it is not just Operating Systems and Office Suites that are going to be taken over by commodity Free/Libre and Open Source Software, but most of the current Software Manufacturing market. I see it as only as a question of 'when', not 'if'.

I believe their only long-term solution is to switch business models to no longer be dependent on proprietary software revenues, and to no longer push the legacy Software Manufacturing business model. Like candle makers before them, pushed out by the disruptive technology of the electric light bulb, so will go Software Manufacturing.

The "Open Source Community" does not have a single answer for this, so the only thing you can ask is what individuals visualize. It is also not a good idea to assume that everyone is involved in Open Source for the same (or even compatible) reasons, nor is there a need to believe that these motivations are rivalrous.

I personally believe that in the long term, Software Manufacturing will go the way of candle manufacturing. This market/craft still exists in niche markets, and still has a minimalist relevance to the economy, but most people eventually upgraded to the electric light bulb once this disruptive technology was invented.

There will always be small niche markets where proprietary software will be the best way to fund the development of specific types of software. I simply do not believe this model applies to ICT infrastructure software such as operating systems, communications tools, office productivity, graphics packages, and so on.

Unfortunately for companies like Microsoft and Adobe (and most other members of the BSA/CAAST), this is the market that they have chosen to be dependent on. All my personal volunteer/professional work in the Free/Libre and Open Source Software community/sector ends up being in direct conflict with their chosen business model.

I consider Free Software and the Internet to be two co-dependent disruptive technologies that will change Information and Communications Technology in ways as radical as the electric light bulb changed non-solar lighting.

I noticed a familiar tone in the question, which is that we are in some supposed to feel sorry for these businesses (some of which are even convicted criminals due to their business practices and business models).

We don't feel sorry for candle makers each time we turn on our electric lights, so I am curious why we are intended to feel sorry for legacy software companies if they don't migrate away from Software Manufacturing as their primary business model?

Russell McOrmond

Internet Consultant

www.flora.ca/

I agree with you that Microsoft attempts everything on a winner-take-all-scale while the everyday chores get shorted.

Major work needs to be done to simplify applications, reduce bugs and crashes, improve security, and improve non-existent customer service.

MS Software is too complicated. Few people need all the bells and whistles that marketing loads on. Fix what generates cash before going off in new ventures. Focus will be crucial in the next 5 years.

Open source is coming to Microsoft. Microsoft has a small window of time to get applications fixed and reliable before competitors and independent programmers take Windows and create a new, better version. Better for MS to set up a standards committee to review, and implement programmers, and consumers suggestions than to lose Windows to faster moving, more focused, competitors, and programmers.

MS needs an application skunk works for each application with authority over all code. A small, focused, exceptionally skilled group of programmers, marketers, consumers, and MS executives that can review each application, clean up code (I have seen some horrendous examples of code bloat because the person had no idea of what the code was supposed to do), discard unnecessary functions, and find ways to improve performance.

A car built by MS might go 300 miles before seizing up, leaving the driver stranded and unclear what needs to be done to get moving again. Call MS to get a Passport code? Call technical support at $29.00 an hour for what may be useless advice? Look at the knowledge base, a tar baby of epic proportions? Buy an upgrade on the hope this might fix the problem?

I, unfortunately, speak from recent experience. I attempted to update Norton Anti-Virus and all hell broke loose. Some programs quit. Some programs worked sporadically. Some programs and files vanished. The internet was unreachable. Five weeks later and some semblance of an operating system has been restored. Calls were made to MS, Dell ($ 29.00 an hour), Norton (lots of e-mail from a friend's computer) before Norton loaded, and several local folks before solutions appeared.

There are some elder statesmen (and women) that worked on the foundation of today's PC who probably have some fascinating insights as to what specifically can be done to right the ship. Example: a lot of the Xerox PARC folks who are retired or near retirement.

Arthur Corbin

WSBD Letters, Page 4

I've taken up on your questions and posted my opinion here.

Stefan Smalla

Business Student

The number one thing you do in business (that is if you really want to succeed) is provide customer service and value.

I am a pretty devoted MS guy because I have always believed that at the core MS provides value when all areas are considered. I am swaying a bit lately as the areas MS was valuable to me in are changing, number one — PRICING.

When Bill Gates attacked CA and IBM over inflated pricing schemes and lack of overall value I was right there with him, but what is MS up to now. Why does Windows cost R$200-300? to Bill and his crew really need to make that much money? And at what cost to the MS machine? There would not be an "Open Source" issue if MS products and support were priced more reasonably. That and the continual lack of focus on development of what is necessary vs. what is coolie: SECURITY and MANAGEABILITY.

I will admit that there have been initiatives lately that seem to be heading in that direction but when Mr. Ballmer says "If the IT community would have listed security as a priority we would have developed it", I have to question his motives.

Isn't the big MS machine the one that got us to this point and don't they have enough good common sense to know that is an issue without it having to be said; or is it after all, just about money. And if it is then how smart are these guys after all, since anyone can see it is one of the very largest threats to their continuing success; otherwise why would there be the "memo" on security.

It really boils down this "Bill — $10-20-40 billion; How much is enough and is that all that matters? Come back down to earth and live with the rest of the humans, eat with us, drink with us and spend some time trying to understand us and what is important to us. We don't want to keep spending all our money on your products, some of us want to go to Disneyland or buy a boat, not make you richer when everyone knows that you are richer than anyone should be allowed to be!"

Eli R Massey

IT Specialist

GTECH Colorado

My thinking is that they are indeed at the precipice now. Microsoft has given the world some fantastic software. Ignoring the detractors, Windows and Office have made using a PC easier than the old days. Office and VB are the single biggest reasons for Microsoft radical adoption from Windows 3.1 and onward.

Note (that) corporations developed on DOS (FoxPro, Clipper, Basic, Paradox etc.), but this was for small systems. The big stuff and even quit a bit of the smaller custom stuff was done on Unix (Solaris, SCO etc). DB2, Oracle, Informix & Sybase were the big guns. Microsoft systematically removed every obstacle by giving an easier program development tool (VB 1-6 with 3 being the real turning point and 6 being the Golden age of the product), ODBC gave easy access to data etc., etc., etc. Microsoft removed the ties to Sybase and again succeeded. Eventually Chicago (95) and NT came out removing more barriers and acceptance was steadily taking hold.

Remember though this was like the fingers of a glove:

1) Client Machines (95)

2) Server and Workstation Machines (NT)

3) Data Access (ODBC)

4) Office Applications

5) Visual Basic (Like it or not, this helped to move Unix out and Windows in many shops)

Over the past year/years, Microsoft has forgotten the old adage 'Dance with who brung you'. In this period they have had several great successes and several semi-trouble spots

1) Win – XP

2) Win - SQL 2000

3) Trouble — New Licensing schemes

4) Trouble — .Net great in theory; gets rid of the 'bad' VB practices. At a price though. Heavy installation requirements, lack of ability to migrate code, slow, lack of vision, costly ramp up. But developers will use this because of fear of being left behind. the problem is this opened the door to Linux.

This point in time I think we should remember. In 5 years we will look back and Microsoft will be vindicated (which I hope) or they will be a player (maybe even still a majority but by just a hair) that lost a significant amount of market share to develop 'Cool' toys, development languages etc.

There are times in life where Revolutionary changes are required. There are other times that evolutionary changes are required. Perhaps a little more Evolution would have been a good thing.

Bruce J. Hafner

President/CEO

Silicon Mindset, Inc

WSBD Letters, Page 5

I was flabbergasted to see "Microsoft's Windows-based client business generated $1.965 billion in operating profit on the back of $2.435 billion sales revenue for the quarter". That's an incredible 80% margin. In contrast, Anhauser-Busch is glad if they can make 4% net profit before taxes.

But then we always knew software had potentially huge margins: write it once, sell it as often as you like (can). I see nothing wrong with Microsoft lowering the price of its software. It's finally about time!

Remember back when Borland made excellent compilers and sold them at reasonable prices? Microsoft has never had to do that. They could somehow get away with charging a premium for such tools. If you assume you can only sell 80,000 units in a given timeframe and it costs you $40M to develop the software, you must sell them for $500 just to break even. But when the market exceeds your humble expectations and you sell over a million units, do you drop the price down to $100 because you've already recouped your R&D expenses, and the rest is gravy?

If you're Microsoft or Lotus or Ashton-Tate, NO, you squeeze the market for all it's worth, and get exceedingly rich in the process. I've been saying for 17 years, the best protection against software piracy is a low price. Microsoft Windows is probably the most heavily pirated piece of software in the world. If a consumer could get Windows XP Pro for $39 (vs. $139) it would easily compete with Linux, which is "free" unless you want it on "CD" (because you don't have high speed access to download the 7 CD's worth of installation files).

There's nothing wrong with Microsoft trying to break into new markets and losing money on them for several years. Nestlé did the same thing to break into the China market, knowing it would take up to 10 years for such new markets to become profitable. You must take the long-range approach, and not worry so much about short-term gains or losses for your stockholders.

Microsoft's only problem will be the recurring nightmare of being constantly accused of monopolistic practices while cracking uncharted or existing markets. If their X Box game systems garner 80% market share by 2010, don't be surprised when Sony cries predatory pricing. Game developers will port or write for the new X Box platform when they see how profitable it can be.

The best defense for Microsoft has always been, they created an entire industry (for third party software developers) where none formerly existed. What OS would the likes of Compaq, Dell or Gateway have been forced to install on their PC's, if it wasn't MS or PC DOS? Or Windows? How many millions of PC's would've been sold if there were 5 equally well-selling but different, incompatible, non-interoperable, operating systems (let's see, Microsoft, Apple, Atari, Desqview, Intel, BeOS, and dozens of UNIX variants)? Not nearly as many as was possible given the stable environment of a single source.

Microsoft has been rewarded in the marketplace (for the past 20 years) for creating such a stable environment (well, as stable as any PC OS has ever been). I, for one, was glad when I could finally stop writing my own printer drivers! Windows wasn't the best OS I'd ever seen (non-multitasking, non-preemptive), but it was plentiful.

By providing their operating system software as "open source" to several gov'ts and gov't agencies, Microsoft has opened Pandora's Box. You will see that source code freely available with 2 years, much to their chagrin, and non-disclosure agreements to the contrary. Hackers will be able to see and modify that source code base (if they can untangle the Gordon's Knot of spaghetti code), just like they can do now with Linux.

Dan Clamage

Management Science Associates

In keeping with the suggestions of "In Search of Excellence" the by Tom Peters, now a classic, I think Microsoft should stick to their knitting. In other words I think they should stop trying get into all sorts of other businesses, and concentrate on making their core businesses the best in the world.

* I would drop MSN, and the gaming stuff.

* I would invest even more heavily in making the OS more stable, secure and giving higher performance.

* I would concentrate on things that improve the server software from an operations perspective, like not having to reboot the entire system every time you apply a patch.

* I would ensure that servers could automatically check for and download updates, but give managers fine-grained control over how and when to install patches.

* I would incorporate Intrusion Detection software, anti-virus software, and anti-spam software where applicable in the base product. I am not suggesting that they compete with all vendors on these fronts, but that they collaborate with vendors to incorporate the best of breed so that the products are well integrated and have a Microsoft look and feel.

* I would ask them to focus on storage management and bringing adequate tools for this endeavor in-house. In this vein they would have to learn to play seamlessly with other vendors.

* I'd like to see capabilities for automatically mirroring data stores across distributed networks. Perhaps they could partner with an external partner to provide this kind of service to small companies who want the protection, but can't afford the hardware investment.

* I would pump more money into the business software because I think they do a very good job here. I have high hopes for their CRM initiative.

* One thing I would like to see with respect to their applications though is a willingness to provide the same capabilities on other platforms, like Linux. They already know they are not going to defeat these competing systems. Why not make this a symbiotic process. If IBM and ORACLE can run their databases successfully on multiple operating systems, so can Microsoft. MS Office is top of the line as an Office product, so are Visio and MS Project. There is not reason these could not be ported successfully to other platforms.

* They could focus their skills in building management apps into building front ends for Linux to make it easier to manage.

* They should move forward to the 64 bit world too.

One thing I think they do well and which they need to keep doing well is providing the support to the developer community to advance the frontiers of software development.

Finally, while every company knows it has to make money to survive, I think you can get too greedy. In a small company I see how hard it is to afford to buy new software and hardware, even though these things are essential to your own existence.

I think Microsoft and other vendors need to rethink their pricing models to more closely match those of the total market, including small companies. They need to examine the price elasticity curve more carefully. Will lowering the asking price of a product by some percentage bring in more business to offset in the difference markup? In many cases I think it would. They need to follow their own mantra of software as a service and provide pricing models that allow businesses to pay for the software over it's useful life rather than just as an up front cost. They need to find a way to tie their revenues to the benefits their software provides to their clients.

Henry Stock, Network Administrator, MCSE

onProject.com, Inc.