There's Still Money in Operating Systems, But Disruptions Loom
Published: June 11, 2008
by Timothy Prickett Morgan
Before the Internet, the operating system was your computing environment, and even though machines might be networked, the operating system on your desktop and the servers it was connected to were not just the dominant way you did computing, but the way you thought about computing. The advent of the Internet, the World Wide Web HTML abstraction layer, and various scripting languages has, as Netscape correctly foresaw when it went public more than a decade ago, changed not only the way we do computing, but also the way we think about computing.
So you might be thinking, the operating system is not all that important any more. But, according to a recent study of the operating system space put together by the analysts at Gartner, there is still plenty of money to be made in operating systems, and in fact, the size of the pile of cash is getting larger. To put a precise figure on it, spanning desktops, servers, and embedded devices, global operating system sales are projected to rise to $28.9 billion in 2008, up 7.2 percent from the $26.9 billion sales level set in 2007. Gartner reckons that between 2007 and 2012, the operating systems market will grow by a compound annual growth rate of 6.8 percent, pushing sales to $37.5 billion by 2012--nearly 40 percent more money than operating system makers brought in during 2007. This sure doesn't sound like a market in decline, and it just goes to show you that data centers, corporate desktops, and consumers are still buying lots of computers. In fact, only a portion of the population is on the Internet (it is hard to say how many, but it is probably safe to say that only a fifth of the 6.5 billion world population is accessing the Internet via a PC-style computer or a server). There is a lot of room for growth as the developing economies get more of their citizens computers. Even if the per-unit price of an operating system falls (and no one is saying that it will), the volume increase is large enough to make up for the price cuts and still push the overall market upward.
While operating systems are a money and profit maker, that doesn't mean operating systems are not facing disruptions, just as they have since the Internet went commercial somewhere around 1995. "Unix to Linux substitutions, users' behaviors, disruptive technology and anti-piracy endeavors will continue to shape the market and change the market dynamics," explains Matthew Cheung, a senior research analyst at Gartner who put together the latest operating system projections. Cheung says that the Linux platform is the fastest-growing part of the server operating system market and that Linux continues to pressure Unix because it runs on lower cost X64 iron (compared to Itanium or RISC processors with most of the other Unixes) and because there are plenty of Linux experts out there.
Revenues for operating systems are also going to be propped up by Microsoft's more aggressive anti-piracy efforts and the advent of low-cost Windows variants in emerging markets, the combination of which will nonetheless boost sales even though prices are dropping because piracy is so rampant in Asia and other areas of the globe. Gartner is also saying that the end of the line for Windows XP and the first Service Pack for Vista could also create a revenue bump as untold tens of millions of PC users move to the new platform.
The exact effect of some of the disrupters in the operating system space, such as the proliferation of multicore processors and virtualization hypervisors and the advent of software as a service (SaaS) delivery of applications, remains hard to quantify. Multicore chips and hypervisors are forcing all software makers to make their software licensing terms more flexible, and that could have a dramatic impact--and probably downward--on overall operating system sales.
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