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Service Revenue vs Products Revenue

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IBM plans to mount its most ambitious challenge in years to Microsoft’s dominance of personal computer software, by offering free programs for word processing, spreadsheets and presentations.

The company is announcing the desktop software, called IBM Lotus Symphony, at an event Tuesday in New York. The programs will be available as free downloads from the IBM Web site.

IBM’s Lotus-branded proprietary programs already compete with Microsoft products for e-mail, messaging and work group collaboration. But the Symphony software is a free alternative to Microsoft’s mainstay Office programs–Word, Excel and PowerPoint. The Office business is huge and lucrative for Microsoft, second only to its Windows operating system as a profit maker.

In the 1990s, IBM failed in an effort to compete head-on with Microsoft in personal computer software with its OS/2 operating system and its SmartSuite office productivity programs.

But IBM is taking a different approach this time. Its offerings are versions of open-source software developed in a consortium called The original code traces its origins to a German company, Star Division, which Sun Microsystems bought in 1999. Sun later made the desktop software, now called StarOffice, an open-source project, in which work and code are freely shared.

IBM’s engineers have been working with OpenOffice technology for some time. But last week, IBM declared that it was formally joining the open-source group, had dedicated 35 full-time programmers to the project and would contribute code to the initiative.

Free office productivity software has long been available from, and the open-source alternative has not yet made much progress against Microsoft’s Office.

But IBM, analysts note, has such reach and stature with corporate customers that its endorsement could be significant.

“IBM is jumping in with products that are backed by IBM, with the IBM brand and IBM service,” said Melissa Webster, an analyst for IDC, a research firm. “This is a major boost for open source on the desktop.”

IBM executives compare this move with the push it gave Linux, the open-source operating system, into corporate data centers. In 2000, IBM declared that it would forcefully back Linux with its engineers, its marketing and its dollars. The support from IBM helped make Linux a mainstream technology in corporations, where it competes with Microsoft’s Windows server software.

IBM is also joining forces with Google, which offers the open-source desktop productivity programs as part of its Google Pack of software. Google supports the same document formats in its online word processor and spreadsheet service.

IBM views its Symphony desktop offerings as part of a broader technology trend that will open the door to faster, more automated movement of information within and between organizations.

A crucial technical ingredient, they say, is the document format used in the open-source desktop software, called the OpenDocument Format. It makes digital information independent of the program, like a word processor or spreadsheet, that is used to create and edit a document. OpenDocument Format is based on an Internet-era protocol called XML, short for Extensible Markup Language, which enables automated machine-to-machine communication.

Any inroads IBM and its allies make against Microsoft, analysts say, will not come easily. “Three major players–IBM, Google and Sun–are now solidly behind a potential competing standard to Office,” said Rob Koplowitz, an analyst at Forrester Research. “But it’s a tough road. Office is very entrenched.”

Read here for more information on the above article.

Personal thoughts:

There is no such thing as a free lunch in the corporate world. The reasons why so many companies are throwing free apps or services out is simply because their revenue generating model is no longer product based but service / advertisment based. Red Hat for example generate its revenue through services / support / maintenance of their Enterprise OS. Google throws out free apps and services because their revenue model is primarily advertisement. IBM has shifted its revenue model to consultancy / services based similar to Red Hat…

There is no such thing as a free lunch. Of course no one like monopolistic businesses… Microsoft was a classic example. I used the word classic because after the DOJ allegation, Microsoft has been rather timid on its stand, somewhat… People complaint that bundled application like Internet Explorer are killing off Netscape and 3rd party applications. Is that really true? Maybe… There is a difference between great application and average application. Most of the stuff you see bundled in Windows are just average quality (and that’s Microsoft fault and it is a good thing cos many companies can do better applications than them) and thus they probably only kill off those 3rd party application that are of average quality. If a 3rd party product is of great quality / standard, will there be a chance of getting knocked off by bundled application? Unlikely… This begs the burning question in the first place, if a 3rd party application is only of average quality, it would never have survived in the first place, with or without bundled. The law of competition and choices out there will kill it off. And then comes Apple with its great iLife applications, bundled… or Google with its ads engine tied to its search results… I don’t know about you but I see the same thing across all their business model. So who is complaining? It’s maturity of the industry as a whole. I wrote an article on what could have been the cause of the agitation in the 90s against Microsoft and how things are different now (other than in Europe). Have a read.

Back to the free lunch thing… Once a company’s revenue model is no longer product driven, there is all the excuses / reasons to champion Open Source or Open Standards everywhere because the very survival of the company (for now) is not dependent on the popularity of a certain products. Microsoft, and many other application company lives on their core product, Windows and Office suite. Microsoft sees a threat coming at them for years and in recent months, you have seen them expanding their revenue model to their competitors’ turf, advertising (see this article on the shift to online advertising). Google definitely can see the threat coming their way… even though it will be a long time before any dent is made. Google or IBM or Suns releasing open source suite is merely trying to put down a formidable competitor by attacking on their core revenue stream.

Likewise, I believe Microsoft should simply releases services / advertisement engine that is FREE to hit back at Google! (but it will take people to start using their Live Search and other connected services in the first place in order to make the dent in Google’s armor… the battle starts now but will only see the results… a long time from now. Google’s dominating search engine is still way ahead of the competition)

With the quality of the open source application getting better… many companies that rely on product revenue will be killed off faster. Whether this is a good news or a bad one depends on which model your business is in. The good motivation is that any company making revenue off application has to keep getting better and set higher standard than any other out there to continue to stay in the game. It has always been the case, for history are written by the winners / survivors.

So, it’s good to have choices… consumer wins. So IBM, thank you for the free Lotus Symphony suite, or Google for the free Google Apps, or Sun for free StarOfficebecause we know what your motives are and we know if one day, if one day… your free open source application were to topple Microsoft Office suite and covers over 80% of the market share, we will see more than just support for open source but ways to make money off consumer. (free bundled ads or chargeable support / services or version differentiation to get enterprise to buy into the more features applications…) Will that be back to square one, where the history of how Microsoft Office suite came about… slow and steady… version after version of improvement… market shares after market shares… to the eventual dominations of the office applications.

I wonder how different things will be…


Written by gooddealz

September 18, 2007 at 10:27 am

Posted in Opinions

One Response

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  1. […] think it is coming from Microsoft… to stop all this free Office suite from IBM or Sun or Google, as I have written earlier, all Microsoft need to do is to provide add […]

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