Now the software giant faces a different challenge: fending off open-source alternatives that are good enough for most jobs.
At Microsoft'scustomer conference last week, executives spelled out the company's lineup to combat these cut-rate incursions onto its turf.
To cool off the popularity of the open-source LAMP combination for application development, Microsoft is readying improved Windows-based alternatives, including low-end Web tools, a database and an Apache-like Web server.
To combat LAMP--and open source in general--Microsoft is focusing both on improving individual products and on designing a comprehensive Windows server suite to be cheaper to own in the long run.
Microsoft's anti-LAMP strategy is to heap features into its low-end products and to build a comprehensive set of tools--spanning development to management--in the hopes of making Windows Server more attractive.
Because open-source products can, in general, be downloaded for free, Microsoft has to compete against them by drawing attention to the "total cost of ownership." It must make the case that, all things considered, Windows applications are cheaper over the long term.
Open source "is the first competitor we've ever had where our cost of acquisition is higher than their cost of acquisition," said Microsoft CEO. "Usually, we're able to come in and say, 'We're cheaper and better'...Here we have to say, 'lower total cost of ownership--and better.'"
The LAMP combination--or ones like it--have been around for many years. But as LAMP becomes more popular, it poses a more comprehensive threat to Microsoft than Linux alone, because the LAMP package includes a development environment and database.
Microsoft executives have long been aware of how developers are using the LAMP stack, but in the past few months the company has shown a more organized response.
In his, Ballmer cited LAMP as a competitor to Windows and its .Net development software and touted Microsoft's ability to fend off LAMP for "lightweight Web app development."
Stacking up against LAMP
In November, Microsoft will release , which will include a new edition called Visual Web Developer Express designed specifically for relatively small-scale Web development, where LAMP is often used.
At the same time, Microsoft will release two low-end versions of its SQL Server 2005 database, including a free Express edition., meanwhile, will include business-intelligence software for generating business reports--typically a costly add-on.
To attack Linux and the Apache Web server in its stronghold among Web hosters, Microsoft next year will release an edition of its Apache's features.(IIS), Web server software that mimics many of
Enhancements to Windows Server are being designed specifically to tackle the places where Linux is strongest, notably for Web development, security servers and high-performance computing, said Bob Muglia, senior vice president in charge of Windows Server development.
Meanwhile, Microsoft is pursuing a multiyear plan called Common Engineering Criteria to create common administrative tools for its server application line, from Windows Server to SQL Server.
Having products that are engineered to work together--something open-source competitors cannot do--will ultimately make Microsoft products easier to run and more cost-effective over time, said Paul Flessner, senior vice president of server applications.
"You can compete with an acquisition price of zero if, over the lifetime, you have a lower total cost of ownership. I think it will be very difficult for them to emulate, honestly, given their economic models," Flessner said. "I feel good about the low-end assault from freeware."
Historically, Microsoft took on the business market via the low end. Microsoft's server products were used for relatively simple applications, which gave the company a toehold in large corporations and significant presence among small- and medium-size businesses.
The LAMP stack, meanwhile, has found a lot of popularity on the Internet, particularly among Web hosters.
But the LAMP combination is increasingly being used in mainstream corporate software development--competing more directly against Windows and .Net, according to analysts and industry executives.
"The LAMP stack is definitely taking market share from Microsoft," said Doron Gerstel, CEO of, which sells PHP development tools.
Gerstel acknowledges that Microsoft has strong development tools that are in a "league of their own," but tooling for LAMP is improving quickly through the efforts of companies such as Zend and the work of open-source communities.
The LAMP combination also gives corporate customers more choice among vendors rather than going only with Microsoft. "More and more enterprises are going with the best-of-breed stack," Gerstel said. "Lock-in is a very important element."
Microsoft alternatives to LAMP are good, particularly in regard to development tools, said Greg DeMichillie, an analyst at Directions on Microsoft.
But even with Microsoft's strong tooling and its long-term commitment to better Windows management, the selection of operating system--Linux versus Windows Server--will heavily influence the choice between competing development stacks.
"For Microsoft, the primary lead in the sale has always been the (Windows) platform," DeMichillie said. "The second is how easy they make it to develop for the platform."