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Aug. 28, 2009

Microsoft is feeling the full impact of the global economic slowdown, as its sales and profit are both down. Reduced demand for its Windows operating system and other software products has had a negative impact on the software giant, and now some analysts believe it won't be until late 2010, early 2011 that Microsoft could start recovering.

Meanwhile, Linux isn't feeling any impact at all. It's even flourishing in fact. But to be fair, while Windows 'client' revenue has let Microsoft suffering in the 2009 fiscal year, producing three quarters inferior when compared to last year, Linux revenue continues to increase and is right on track of making the open-source OS a $1 billion a year business.

Market analyst IDC estimates that between 2008 and 2013, Linux revenue will deliver a compound annual growth rate (CAGR) of about 17 percent. Others say it might even be a bit higher.

IDC forecasts that Linux revenue will pass the $1 billion mark in 2012, and in just a single year it will grow by an additional $200 million, reaching $1.2 billion in about 3 to 4 years from now.

Meanwhile, following years of growth, Windows revenue has been shrinking since the end of last year. For the past 3 fiscal quarters ending with mid-2009, Windows client revenue has been considerably smaller compared to the same quarters of last year.

The fisrt quarter of this year is the only quarter of Microsoft’s past fiscal year when the Windows client division posted better results over last year. In Q2 2009, Windows client revenue dropped from $4.3 billion in the same period in 2007 (Q1 2008 for Microsoft ended in December 2007) to just $3.9 billion. For the next three months, Windows revenue reached $3.4 billion, approximately $600 million less than the $4.0 billion in Q3 2008.

The difference in Windows client revenue between Q4 2009 and Q4 2008 is larger than the entire Linux revenue projected for 2012. Windows dropped from $4.3 billion to just $3.1 billion. According to IDC, Linux revenue grew by no less than 23.5 percent between 2007 and 2008.

The combination of the difficult economic conditions, the maturing of enterprise virtualization software, and the increasing use of replica copy deployments of Linux server operating systems is leading to a shift where the success of the market is increasingly defined by the installed base rather than by the number of brand new subscriptions or deployments being made.

"The economic downturn is impacting nearly every IT market segment and has placed its mark on the Linux server operating environment and client operating environment markets,” revealed Al Gillen, program vice president, System Software at IDC.

“The long-term prognosis for Linux is very good, but we see this year as a turning point for the nature of Linux adoption and deployment, as customers rationalize through the new economic realities and factor in other considerations such as the best way to use virtualization software. In the end, the markets of tomorrow are going to behave very differently than the markets of the past," added Gillen.

Computer users will take advantage of the inexistent price tag that is associated with Linux. IDC forecast that free Linux server operating system deployments will outpace new subscriptions in the next four years.

Nonpaid Linux server deployments will increase to almost 44 percent from just 41 percent two years ago. "This phenomenon is not unique to Linux – as we see the same trend playing out with Windows server operating environments," Gillen noted.

“We find that more and more customers are seeing nonpaid Linux as a viable solution for certain non-critical business needs, despite the lack of commercial applications and the potential support challenges that come with a non-commercially-supported distribution."

But still, it’s not all good news for Linux in a certain way. IDC did note that the Linux server operating system subscriptions will suffer a contraction this year. But as the market analysis firm said, 2009 is a turning point for Linux adoption and deployments.

Net new subscriptions of Linux server OS are expected to recover through 2013 and are expected to continue to grow from 8 percent a year on the low scale, to about 11 or 12 percent on the higher end.

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Source: IDC.

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