From: "Steve Ballmer" <steveballmer@ceo

From: "Steve Ballmer" <steveballmer@ceo.microsoft.com>

To: <xxxxxx@xxxxxx.xxx>

Subject: Customer Focus: Comparing Windows with Linux and UNIX

Date: Wed, 27 Oct 2004 21:11:45 +0000

In the thousands of meetings that Microsoft employees have with customers around

the world every day, many of the same questions consistently surface: Does an

open source platform really provide a long-term cost advantage compared with

Windows? Which platform offers the most secure computing environment? Given the

growing concern among customers about intellectual property indemnification,

what's the best way to minimize risk? In moving from an expensive UNIX platform,

what's the best alternative in terms of migration?

Customers want factual information to help them make the best decisions about

these issues. About a year ago, a senior Microsoft team led by General Manager

Martin Taylor was created to figure out how we could do a better job helping

customers evaluate our products against alternatives such as Linux/open source

and proprietary UNIX. This team has worked with a number of top analyst firms

that have generated independent, third-party reports on cost of acquisition,

total cost of ownership, security and indemnification. Some of the studies were

commissioned by Microsoft, while others were initiated and funded by the

analysts. In each case, the research methodology, findings and conclusions were

the sole domain of the analyst firms. This was essential: we wanted truly

independent, factual information.

At the same time, our worldwide sales organization is going even deeper with

customers to understand their needs and create a feedback loop with our product

development teams that enables us to deliver integrated solutions that support

real-world customer scenarios, and comprehensively address issues such as

manageability, ease of use and reliability.

I'm writing to you and other business decision makers and IT professionals today

to share some of the data around these key issues - and to provide examples of

customers who opted to go with the Windows platform rather than Linux or UNIX,

and how that's playing out for them in the real world. Much more information on

this is at www.microsoft.com/getthefacts.

This email is one in an occasional series of emails from Microsoft executives

about technology and public-policy issues important to computer users, our

industry, and anyone who cares about the future of high technology. If you would

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TOTAL COST OF OWNERSHIP AND ACQUISITION COSTS

In the past few years, you haven't been able to open a computing magazine or

visit a technology Web site without running into an article about Linux and open

source. Not surprising: who doesn't like the idea of a "free" operating system

that just about anyone can tinker with?

But as the Yankee Group commented in an independent, non-sponsored global study

of 1,000 IT administrators and executives, Linux, UNIX and Windows TCO

Comparison, things aren't always as they seem: "All of the major Linux vendors

and distributors (including Hewlett-Packard, IBM, Novell [SUSE and Ximian] and

Red Hat) have begun charging hefty premiums for must-have items such as

technical service and support, product warranties and licensing

indemnification."

Yankee's study concluded that, in large enterprises, a significant Linux

deployment or total switch from Windows to Linux would be three to four times

more expensive - and take three times as long to deploy - as an upgrade from one

version of Windows to a newer release. And nine out of 10 enterprise customers

said that such a change wouldn't provide any tangible business gains.

Yankee also noted that, for larger organizations with complex computer networks,

it's important to look beyond Linux's initial low investment cost and consider

all of the TCO and ROI factors.

This is exactly what one of our large enterprise customers, Equifax, did

recently. Equifax, a $1.2 billion U.S.-based enterprise with 4,600 employees in

13 countries, needed more computing power than its mainframe systems could

deliver for rapidly searching the company's vast marketing database. They spent

several months conducting an internal analysis, which proved that, compared with

Linux, Windows would realize a 14% cost savings and shorten their time to market

by six months. (Equifax Case Study -

http://www.microsoft.com/windowsserversystem/facts/casestudies/CaseStudy.aspx?Ca

seStudyID=15528)

Another comprehensive, non-sponsored study by Forrester, entitled The Costs and

Risks of Open Source, drew a similar conclusion: "The allure of free software is

accelerating the deployment of open source platforms, but open source is not

free and may actually increase financial and business risks."

In early 2004, Forrester conducted in-depth discussions with 14 companies that

had been running Linux platforms for longer than one year to see what the costs

really were. Several key themes emerged:

- Few companies know what they're really spending. Only five of the 14 kept

detailed metrics - and each of those five found Linux more expensive (5% to 20%)

than their current Microsoft environments.

- Preparation and planning activities took 5% to 25% longer for Linux than

Windows.

- Training for IT employees was significantly higher for Linux than for Windows

- on average, 15% more expensive. The reasons: training materials were less

readily available, and customers spent more on training to compensate for the

lack of internal knowledge about Linux.

- All 14 companies said it was difficult finding qualified Linux personnel in

the marketplace to support their Linux projects. When they did find third-party

help, they had less leverage negotiating hourly rates than with Windows

consulting resources.

One of our mid-market customers, Computer Builders Warehouse (CBW), came to a

similar conclusion. CBW builds computers to order for education, government, and

corporate customers. Several years ago, it deployed Red Hat and Mandrake

versions of Linux to support its corporate, retail and e-commerce applications.

Challenged with high costs, CBW subsequently migrated to Microsoft Windows

Server System, and reduced its total cost of ownership by 25 percent. It also

consolidated its server population by 50 percent, reduced maintenance time by 50

percent, and boosted developer productivity by 200 percent. These benefits -

totaling $650,000 in savings - are dwarfed by the millions of dollars in new

revenue that CBW expects as a result of bringing a key security and monitoring

product to market more than two years faster than it could have done using

Linux. (CBW Case Study -

http://www.microsoft.com/windowsserversystem/facts/casestudies/CaseStudy.aspx?Ca

seStudyID=15131)

SECURITY

About three years ago, we made software security a top priority, and since then

we've invested heavily in a multi-pronged effort to improve software quality and

development processes, and to reduce risks for customers through education and

guidance, industry collaboration and enforcement. I think it's fair to say that

no other software platform has invested as much in security R&D, process

improvements and customer education as we have at Microsoft.

Still, Linux has often been touted as a more secure platform. In part, this is

because of the "many eyeballs" maxim of open source software that claims a

correlation between the number of developers looking at code and the number of

bugs found and resolved. While this has some validity, it is not necessarily the

best way to develop secure software. We believe in the effectiveness of a

structured software engineering process that includes a deep focus on quality,

technology advances, and vigorous testing to make software more secure.

A number of third-party reports have questioned how safe the Linux platform

really is. For example, a recent independent study by Forrester, Is Linux More

Secure than Windows?, highlighted that the four major Linux distributions have a

higher incidence and severity of vulnerabilities, and are slower than Microsoft

to provide security updates.

According to Forrester, Microsoft had the lowest elapsed time between disclosure

of a vulnerability and the release of a fix. They found that Microsoft addressed

all of the 128 publicly disclosed security flaws in Windows over the 12-month

period studied, and that its security updates predated major outbreaks by an

average of 305 days.

Other independent sources of data show similar conclusions. According to

statistics posted on the security Web site Secunia

(http://secunia.com/product/2535#statistics_month), Red Hat Enterprise Linux 3

has averaged 7.4 security advisories per month, compared with 1.7 advisories for

Windows Server 2003.

And as Yankee Group noted in its Linux, UNIX and Windows TCO Comparison study,

"Linux-specific worms and viruses are every bit as pernicious as their UNIX and

Windows counterparts - and in many cases they are much more stealthy."

This was a deciding factor in farmaCity's selection of Windows over Linux.

Headquartered in Buenos Aires, farmaCity is a rapidly growing Argentinian

drugstore chain with 50 outlets and 1,200 employees. Although farmaCity's growth

in recent years was a testament to its success, the company's aging technology

infrastructure had become a hindrance to further expansion. After careful

analysis, farmaCity concluded that Windows would reduce network administration

by 30 percent compared with Linux, and would also simplify identity and desktop

management. But the core reason for selecting Microsoft was the increase in

network security, complemented by the ability to reduce patch-deployment time by

50 percent while cutting unsolicited e-mail by half. (farmaCity Case Study -

http://www.microsoft.com/windowsserversystem/facts/casestudies/CaseStudy.aspx?Ca

seStudyID=15269)

INDEMNIFICATION

Increasingly, we're hearing from customers that another factor in their

consideration of computing platforms is indemnification. In 2003, we looked at

our volume licensing contracts to see what we could do to increase customer

satisfaction, and a top issue we heard about was patent indemnification, which

then was capped at the amount the customer had paid for the software. So later

that year, we lifted that cap for our volume licensing customers, who are most

likely to be the target of an intellectual property lawsuit.

Today, when a volume licensing customer - a business or organization ranging

from as few as five computers to many thousands - licenses a Microsoft product,

we provide uncapped protection for legal costs associated with a patent,

product. We do this because we are proud to stand behind our products, and

because we understand that being on the wrong end of a software patent lawsuit

could cost a customer millions of dollars, and massively disrupt their business.

No vendor today stands behind Linux with full IP indemnification. In fact, it is

rare for open source software to provide customers with any indemnification at

all. We think Microsoft's indemnification already is one of the best offered by

the leading players in the industry for volume licensing customers, and we're

looking at ways to expand it to an even broader set of our customers. It's

definitely something businesses want to think about as they're building or

expanding their IT infrastructure.

It was certainly a factor for Regal Entertainment Group, the largest movie

theatre chain in the world. In 2001, they moved to Red Hat Linux. After

evaluating Linux in their business for several months, however, they migrated to

the Microsoft platform - not only because of lower TCO, stronger support and

services, and greater reliability and manageability, but because they were more

fully indemnified on IP. J.E. Henry, CIO of Regal Entertainment, told me that

"reduced risk was a decision factor in selecting Windows over Linux. We needed

to minimize our exposure to the distraction of potential IP infringement claims,

and we had a big enough open source presence to be concerned. With the way that

Microsoft stands behind its products, it's one less thing that I have to worry

about."

UNIX MIGRATION

One of the hot topics among enterprise IT and business decision makers today is

the costs and benefits of migrating enterprise resource planning systems (ERP)

from costly, proprietary UNIX environments to Windows or other platforms. ERP

integrates various company functions such as human resources, inventories and

financials, and links a company to its vendors and customers.

An independent, qualitative survey of organizations that recently completed a

migration of their SAP or PeopleSoft ERP system from a UNIX environment to the

Microsoft Windows Server platform found a more than 20% reduction in the number

of servers required compared with UNIX. The survey, by META Group, found that in

one large telecommunications company, consolidation on Windows allowed a greater

than 50 percent reduction in the number of required servers.

The survey also found a more than 50 percent improvement in areas such as

reliability, accessibility and scalability; significant savings in cost

management, IT staffing, performance monitoring and vendor management; and

measurable savings in technical support and training. More than half of business

function decision makers also saw significant improvements in areas such as

consistency, accuracy, reporting enhancement and performance.

"Windows is now a mainstream option for the vast majority of ERP projects," META

Group concluded.

A great case study is the Raiffeisen Bank Group, the largest private bank group

in Austria with about 2,600 branches. It wanted to reduce costs and provide

better customer service by consolidating the number of servers in its branches

by 50 percent. Raiffeisen investigated migrating from UNIX to either Linux or

Windows. After evaluating the possible solutions, the company found that Windows

Server 2003 would provide the most economical solution along with better

performance, while giving bank employees an integrated view of customer

information that they needed to improve customer service. (Raiffeisen Bank Group

Case Study -

http://www.microsoft.com/windowsserversystem/facts/casestudies/CaseStudy.aspx?Ca

seStudyID=15519)

One of our mid-market customers had a similar experience. Grand Expeditions is a

consortium of luxury travel companies that significantly reduced its Web

development and hosting costs, and improved site reliability and performance, by

moving from a combination of Linux- and UNIX-based servers to Windows Server

2003 and the Windows Server System. The new system was up and running in just 60

days, and is saving Grand Expeditions $200,000 a year. (Grand Expeditions Case

Study -

http://www.microsoft.com/windowsserversystem/facts/casestudies/CaseStudy.aspx?Ca

seStudyID=15397)

IN CLOSING...

There is no question that customers are benefiting today from a healthy,

competitive IT industry. Competition requires companies to really focus in on

what customers want and need. At the same time, customers have a clearer

opportunity than ever before to evaluate choices.

For example, BET.com, the Internet portal created by Viacom subsidiary BET

Networks, did an in-depth comparison of Red Hat Linux and Windows Server System.

They found that Windows offered 30% lower TCO, was more secure and reliable, and

enabled quicker time to market. As BET.com's CTO, Navarrow Wright, said: "When I

looked at all the costs - not just the straight price of software - a Windows

Server System-based solution made better financial sense than sticking with our

Sun and Oracle environment or switching to Linux. We decided to migrate the

whole enterprise from various software vendors to standardize all of our

software on Microsoft."

By implementing Windows Server 2003, Windows XP Professional, Office

Professional Edition 2003, Exchange Server 2003, Content Management Server 2003

and Visual Studio .NET 2003, BET.com conservatively estimated that its workforce

will increase productivity by 25-30%, while saving significantly in licensing

and redevelopment costs.

As organizations increasingly rely on IT to perform mission-critical functions,

and with complexity a growing challenge, choosing the right computing platform

for the long term can make the difference between profit and loss, and between

future success and failure. And it's pretty clear that the facts show that

Windows provides a lower total cost of ownership than Linux; the number of

security vulnerabilities is lower on Windows, and Windows responsiveness on

security is better than Linux; and Microsoft provides uncapped IP

indemnification of their products, while no such comprehensive offering is

available for Linux or open source.

The vision and benefits of an integrated platform are what distinguish

Microsoft's approach to software. The Windows platform today offers an unmatched

level of value, applications availability, simplicity, security and

productivity. For Microsoft, this is truly a cross-company effort that requires

the server and client operating systems to seamlessly deliver great usability

and manageability features, applications that deliver compelling scenarios, and

tools that enable developers and ISVs to easily and quickly build new

applications on the platform.

It's important that customers have all the information they need when making

critical and expensive IT decisions. If the evidence at our

www.microsoft.com/getthefacts Web site doesn't sufficiently convey the benefits

and value of the Microsoft platform, we want to hear from you so we can work

even harder to get that information to you. If you would like to have a more

detailed discussion about your company's IT needs, email Martin Taylor at

martinta@microsoft.com.

Steve Ballmer

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