Microsoft cites Linux as rival in official document

Rise of netbooks makes Redmond see open-source OS as a competitor beyond the server

Microsoft has, for the first time, named Linux distributors Red Hat and Canonical as competitors in the non-server space in its annual filing to the US Securities and Exchange Commission.

The move is an acknowledgement of the first viable competition from Linux to its Windows client business, due mainly to the use of Linux on netbooks, which are rising in prominence as alternatives to full-sized notebooks.

"Netbooks opened Microsoft to the possibility that some other OS could get its grip on the desktop, however briefly," says Rob Helm, director of research for Directions on Microsoft. "Now it's alert to that possibility going forward."

In its annual Form 10-K report for the fiscal year ended June 30, Microsoft cited Red Hat and Canonical — the latter of which maintains the Ubuntu Linux distribution — as competitors to its client business, which includes the desktop version of its Windows OS.

Previously, Microsoft had only noted competition from Red Hat to its Server and Tools business in its 10-K reports.

"Client faces strong competition from well-established companies with differing approaches to the PC market," Microsoft says in the filing. "Competing commercial software products, including variants of Unix, are supplied by competitors such as Apple, Canonical, and Red Hat."

The filing goes on to note, in a thinly veiled reference to netbooks, that Linux has gained what Microsoft characterises as "some acceptance" as an alternative client OS to Windows, in particular in "emerging markets" where "competitive pressures lead OEMs to reduce costs and new, lower-price PC form-factors gain adoption".

It also mentions the work of Microsoft's own OEM (original equipment manufacturer) partners Hewlett-Packard and Intel in supporting Linux on PCs.

Seattle-based blogger Todd Bishop called attention to Microsoft's acknowledged change to the competitive landscape in a blog post on the TechFlash Microsoft Blog. He also posted a link to Microsoft's 10-K filing.

While Linux on servers is a well-established market among business customers, Linux as a viable alternative to Windows on PCs has never taken off. However, the emergence of the netbook as a low-cost, smaller form factor to the traditional notebook PC has changed that, so much so that Microsoft lately has been pushing a lightweight notebook as an alternative to netbooks, Helm says.

"Microsoft would like the netbook to go away and be replaced by lightweight laptops — ones with long battery life that cost enough to justify running full Windows on them," he says.

Helm adds that Microsoft is trying to discourage the production of inexpensive computers where Windows becomes the most expensive component because it can't make as much money on Windows on these devices, and they could drive down the price of Windows.

Microsoft's current Windows client OS, Vista, had too large a hardware footprint and was too expensive for netbooks, giving Linux an opening in that market when it emerged late last year. However, Microsoft's eight-year-old Windows XP OS is still the dominant system for netbooks, and the release of Windows 7 in October will feature a Starter Edition that is especially geared toward that market.

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