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Microsoft and the opportunity to cash in on "free"

Microsoft has a chance to expand its dominance, but it needs to embrace disruption, not hide from it.

Dana wrote an excellent piece over the weekend challenging Microsoft to compete with open-source products, and not with open source itself. This has what Microsoft has claimed to be doing for years, but the reality is that Steve Ballmer can't seem to wrap his brain around open source, even when he tries to appear open or dismissive to or of it.

Microsoft should be looking to open source as an exceptional opportunity to extend the dominance of its Windows platform. Instead, it gets so mixed up as to whether it's a platform or application or proprietary company that it fails to simply add open source to its arsenal. Dana writes:

Open source and Microsoft were never really enemies in the first place. Open source is a business model. Microsoft is a company. It's like pitting a noun against a verb.

Microsoft is free to use the open source business model, or any model derived from it, like SaaS. Open source companies, in turn, are perfectly free to deliver proprietary extensions to open source products, as they regularly do under many licenses.

The conflict between Microsoft and open source involved the monopoly rents Microsoft was gaining due to what is now becoming an obsolete business model. That era is now over and Microsoft knows it.

Yes, Microsoft's proprietary model continues to deliver outsized returns, even as the market cools to Vista and other Microsoft products. This is a testament to the power of lock-in. It's not hard to look around the industry to spot other examples of companies that continue to take in hundreds of millions of dollars in maintenance fees on products that long ago ceased being competitive in the market.

But that same industry points to an end to the proprietary license model as we've known it. Mini-Microsofts aren't getting funded anymore; at least, not at the same rate. SaaS is in. Open source is in. Advertising-based models are in. Build a proprietary application and sell it through an expensive field sales force? That's out.

In short, we already have the giants: Microsoft, Oracle, SAP, IBM. These companies have runway to keep doing what they've always done, but on a bigger scale (i.e., consolidation). Newcomers need to disrupt, and SaaS and open source appear to be two of the most useful ways to disrupt established industries and deliver value to customers...and not merely shareholders.

As Dana suggests, it's not the end of proprietary software. But it may well be the end of a particular era of proprietary software. Microsoft is free to join this new era, but it's really going to have to alter the way it delivers value to the market, starting with figuring out the web...which will require that it figure out open standards, open source, and the other components of the modern Internet.