Ray Ozzie is afraid of open source, but why?

Microsoft has admitted that it fears open source. Why? Because it has yet to learn to harness it.

So, Ray Ozzie has gone on the record to suggest that open source could be a bigger threat to Microsoft than Google is. Savio isn't buying that line, and I'm not sure that I do, either.

Let's be clear about what Ozzie actually said:

...[O]pen source [i]s much more potentially disruptive [than Google].

Open source has disruptive potential. Google is disruptive now. Google is making money now in markets that Microsoft covets, while open source is not cutting into a single Microsoft revenue stream. Not one. Red Hat and Novell's SUSE are almost entirely eating away at the Unix market, while MySQL is creating new markets with web properties. Open source? It doesn't (today) make a dent in Office, Windows, XBox, Dynamics, etc.

So why is open source potentially so disruptive to Microsoft? Two reasons.

First, open source is providing a robust, free foundation upon which Microsoft's biggest future competitors are building. Google, Yahoo, Facebook, etc. are all children of open source. Without open source, they are arguably not nearly as viable as businesses because they would lose both flexibility and funding in and to their infrastructure.

Second, open source changes the way customers expect value to be delivered in software and drops the start-up cost to $0.00. Microsoft has, in part, pushed so hard to set up patent toll booths to open source to raise this price tag above $0.00. Microsoft can compete with $0.10. It has yet to figure out how to compete with free, the tool that helped it to kill Netscape.

Arguably, commercial open-source projects are not the disruptive force of which Ozzie was speaking. Commercial open-source projects aren't free (at least, not all versions are free as in price tag) and don't offer all the benefits of organic open source (Absolute flexibility being the primary one) while simultaneously offering others (Trusted support, "guaranteed" longevity, documentation, etc.).

Microsoft's Jason Matusow has long argued that the more open source looks like commercially-licensed software, the easier it is for Microsoft to compete. He is almost certainly right, though even commercial open-source projects offer disruption that is difficult for Microsoft to match.

Microsoft's biggest fear must be the Googles of the world: Companies that fund open-source development without the need to sell that software directly. Microsoft knows how to compete in selling software. It still has no clue how to use free software to create more free software, while offering proprietary services on top of that software. It still believes it has to build everything itself.

Google's Vic Gundotra, vice president of Engineering for Developer Products, declares:

"After years of competition among platforms, the web has won because it's open, because it's ubiquitous, and because there's a passionate community working together to move it forward. Openness is great for developers and for users because it knocks down hurdles to building great applications, and because it speeds the next wave of innovation by letting good ideas be shared. The web doesn't depend on any one API or tool or product, from Google or anyone else. What makes the real difference is the aggregate effect of us all working together, with open standards and open source.

Can you imagine Microsoft making that sort of a statement? Never. And that is why it fails on the web.

In sum, Microsoft still doesn't understand the Internet, the ultimate child of the open-source movement. It is the Internet that simultaneously makes Google and open source so brilliantly destructive and disruptive to Microsoft's future.

Ray Ozzie is right to be afraid.