All Your IT Dollars Are Belong to Microsoft

Published: May 30, 2007

by Alex Woodie

Call it the evil empire, the Beast, or an unrequited monopolist if you like. But whatever you do, please don't call Microsoft irrelevant, because it's becoming increasingly clear that the software giant, despite its flaws and questionable ventures, is making serious inroads at becoming the dominant IT supplier to businesses, recent survey numbers show.

Microsoft, perhaps more than any other company, defined the ethos of the dot-com boom in the late 1990s. The company made a mint selling operating systems and productivity software as the computer and Internet revolutions took shape. With a listing on the Nasdaq, the company's shares skyrocketed, making billionaires out of its founders. The amount of cash generated by the company that Bill Gates and Paul Allen founded is truly mind-boggling, and has been the model and the goal of every IT entrepreneur since then.

In the post-2001 world, however, Microsoft's rising star began to slow, and questions began to surface about the company's leadership. Microsoft was never on the leading, bleeding edge of innovation and development. Rather, much of its success hinged on its leaders' abilities to spot the next trend in computing and move the company and its products--roughshod and indifferent to competitors and partners alike, if need be--over that spot. The graphical user interface and Web browser are good examples of technologies first developed by other companies but popularized by Microsoft. There are many others.

Since it came to dominate the desktop in the mid to late 1990s, the company has set its sites on the server business. Windows NT and Exchange 5.0 were the first server products that brought Microsoft success, but security and reliability issues plagued the vendor, leading many companies to continue to invest in expensive RISC-Unix boxes for critical business applications. Microsoft had a lowly 20 percent share of the market in 1996, according to the IDC, but that would soon change.

Microsoft nominally improved its server performance over Windows NT with Windows 2000 Server, and with a little help from the open source community developing an operating system called Linux that, like Windows, ran on Intel's "industry standard" X86 PC server platform, the X86 PC server platform started to take off, bringing Microsoft's fortunes in the server business with it.

By the end of 2000, 42 percent of new servers shipped ran Microsoft operating systems (primarily Windows NT), according to IDC. By 2001, Windows NT and Windows 2000 Server accounted for 49 percent of all servers shipped. Of course, because 32-bit Windows boxes running on the X86 PC server platform were so much less expensive than the proprietary 64-bit RISC servers running Unix and OS/400 that many mid size and large businesses preferred for their business applications, Wintel server sales were dwarfed by revenue.

By 2003, things really started to take off in the X86 PC server world. Wintel server sales grew at a better-than-10-percent rate and were selling at a $10-billion-per-year run rate, while revenue from Linux server sales grew at better than 20 percent, but the sales volume was only about a third of Wintel servers. Taken together, sales of Windows and Linux servers, which drew the lion's share of X86 PC server sales, accounted for 37 percent of the total server revenues, with the bulk of the rest going to Unix servers, which were only growing at about a 5 percent rate in 2003. In 2004, as the X86 platform evolved into the 64-bit X64 platform, Windows passed Unix in terms of server revenue (it had long passed Unix in terms of units shipped), and it never looked back.

This whole time, while Windows has been making inroads against proprietary Unix boxes, Linux has been the gnat that would not leave Microsoft alone. In comparison to Windows' big gains against Unix, Linux was making even bigger gains (if you can call it that, considering Linux is a form of Unix), on a percentage basis if not on a total dollars basis.

But now, it appears that Windows is overtaking Linux in growth. Maybe it was only a statistical fluke, but according to the most recent IDC numbers, sales of Windows servers grew at a 10.4 percent rate, to $4.8 billion, during the first quarter, compared to an increase of just 10 percent for Linux to $1.6 billion. This was the first the first time since 1998 when IDC started tracking Linux as a separate category in servers that Windows has outgrown Linux. That is a significant turn of events if it continues to hold true.

Today, Windows is driving about $20 billion in server sales per year, or somewhere in the neighborhood of 37 percent of the $55 billion or so in systems that the major (and minor) server vendors will sell this year. That makes Microsoft as close to being the dominant system vendor as anybody else out there, making the IDC's prediction that Microsoft will dominate servers by 2008 a wholly accurate one so far.

The fact that Microsoft sells a complete stack--including operating system, database, middleware, and development tools--gives the company even more credibility. And Microsoft is winning on that front, too.

According to an Evans Data survey released last week, 50 percent of software professionals expect to increase their overall IT development spending with Microsoft. That's a bigger percent than any other vendor received on that question, indicating that Microsoft will gain the lion's share of IT spending increases over the next year, and that Microsoft has the upper hand and the inside track when it comes to influencing the big IT spending picture at companies around the world.

When it came to application development spending, Microsoft finished second to SAP, which garnered a 54 percent share to questions about which vendor they will spend the most with. Microsoft finished with 50 percent, while BEA Systems finished third.

Interestingly, Microsoft didn't even rank in the top three when it came to which vendors respondents will spend most of their money allotted for service oriented architecture (SOA) projects. SAP led with 41 percent, BEA followed closely with 40 percent, while 34 percent said they would spend the most with IBM.

Say what you will about Microsoft, its business strategies, and its software, but the company finds a way to get what it wants and to get results. If press feedback and the blogosphere are any indication, Microsoft has antagonized computer users and IT professionals with its actions more than any other vendor. Despite the reputation it has developed in some circles, there is no doubt that the company has woven itself into the fabric of business IT.

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Editor's note: If you are confused about the headline, don't be--just visit en.wikipedia.org/wiki/All_your_base_are_belong_to_us and join the geek-speak train.

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