Jean-Louis Gassée, a general partner at Allegis Capital, Mark Shuttleworth has been pointing out for years, Gassée takes it a step further by suggesting how Microsoft will embrace free, without giving away the farm:, one that I highly encourage you to read. In it Gassée walks through the difficulties Microsoft has in competing with 'free,' something that
Microsoft's future business model will borrow from Apple and Google, it will have two components: proprietary devices and "universal" Cloud services. And like its models, it will attempt to extract extra profits by nicely tying both components together.
Free (and open?) core, with proprietary nodes/connections to that core: this sounds like an excellent model for Microsoft to try, because it allows the company to embrace 'free' without abandoning its commitment to its intellectual property.
This actually strikes me as an interesting model for a range of companies, most of which will need to borrow free, cloud services from Google, Microsoft, Yahoo!, etc., because it's too costly to build one's own cloud. We'll likely see a wide range of companies adding proprietary nodes to an open cloud, adding value to those clouds and deriving value at the same time.
This actually isn't too far from how many open-source companies work today. Companies like Zimbra provide a large "cloud" of free and open-source software, but charge for proprietary intersections to that "cloud." Want to sync Zimbra to proprietary Microsoft Outlook? You pay. Blackberry sync? Ditto.
Which brings us back to Microsoft. Can Microsoft compete with free? Yes, it can. But first it needs to embrace free. It has proved in the past (Internet Explorer, SharePoint Services) that it knows how to put 'free' to good use. Now it needs to embrace free on a much larger scale.