Microsoft vs. Linux and Dell, Round 2

Written By Brian Hicks

Posted March 13, 2007

When it comes to overnight success stories, Michael Dell’s is certainly one for the books. After all, how many 19-year-old college kids manage to rack up nearly $6 million in first-year sales by storming the walls of an industry giant like IBM?

The answer is not many. Add to the story that he started with a mere $1,000 and was working from his college dorm room, and the story becomes one of legend. Not bad for a college dropout.

But that is exactly the kind of compelling story that Michael Dell was able to write with his energy and talent, and by the time he stepped down in 2004, a lot of dudes were buying a whole lot of Dells.

In fact, by 2004 his company–Dell Inc. (DELL: NASDAQ)–had beaten the odds and survived the race to become the most profitable PC manufacturer in the world, with sales of US$49 billion.

But ever since its founder’s triumphant departure, Dell’s performance has been less than stellar.

In fact, since he left the company for other pursuits, the unthinkable has happened–Dell has lost not only market share, but its place at the top.

Long time rival Hewlett-Packard(HPQ:NYSE)–another great story begun in a garage–has now grabbed the crown with a 3.5% advantage in market share over the former champ.

This stunning reversal of fortune has generated its share of scapegoats. Dell’s successor, CEO Kevin Rollins, has been shown the exit and Dell himself returned on January 31 to right the ship that he first floated.

"We are disappointed with the company’s results, but what matters is our plan of action," Dell said in the aftermath of the bloodletting. "We are systematically moving to increase efficiencies, improve execution, and transform the company."

And as part of that transformation, Dell is now actively floating an idea that was totally unthinkable at the time of his departure–the option of a Linux operating system.

At least that was the big news released last week in reaction to the overwhelming response Linux generated in a "suggestion box" on the Dell website.

The Dell "IdeaStorm" box took in over 100,000 requests for the free open-source software, prompting the move.

"We are listening to what customers are saying about Linux and taking it into consideration," said Dell spokesman David Lord. "Let’s say ‘Certainly stay tuned.’"

 

But members of the growing Linux subculture won’t be the only ones with their eyes peeled.

Industry giant Microsoft(MSFT:NASDAQ), the anti-Linux, as it were, will also be eyeing Dell’s every move. As the owner of the Windows operating systems that run over 95% of the world’s PCs, a new and nearly free Linux operating system is a legitimate long-term threat to its market dominance.

In fact, an earlier 2001attempt by Dell to offer Linux was quickly stomped on by Microsoft as it turned its monopolistic screws, with the software giant taking the line that equipment manufacturers "should meet demand but not help create it" for Linux.

In response, Dell chose not to rock their already profitable boat, and quietly pulled Linux from its desktops in the summer of 2001.

But with sales in decline and its rival Hewlett-Packard closing custom deals for thousands of desktop PCs running Linux, the tide may have turned. This is especially true since sales of Microsoft’s Vista have been lackluster so far and users have been dissatisfied with its minimum hardware requirements.

For its part, Dell has been somewhat coy about its budding relationship with Linux, saying that it is only certifying Novell’s SUSE Linux for its machines but not necessarily offering it.

It’s a tightrope that Dell seems content to walk for now due to the relative commercial drawbacks involved in offering and supporting the free software. That’s because with over 300 separate distributions and a small base of existing users and available software, Linux may not be the silver bullet for Dell or anybody else.

So for now Dell has taken the wait-and-see approach.

But if Linux’s day in the sun has finally arrived, then Michael Dell will certainly be a big part of the push to bring it to market–just like he tried to do in 2001.

That means Microsoft could end up being the biggest loser of them all. In order to increase its bottom line, the software giant needs to drive up the price of its software even as hardware prices fall.(how else can you grow profits with a 95% market share?)

But with the rebirth of the Linux threat, that will be increasingly hard to do, especially now that Dell is looking to recapture its spot at the top and is eyeing another fling with Linux.

After all, nobody knows better than Michael Dell that price, quality and service are what winning businesses are made of.

He figured that out when he was kid and it made him millions.

 

Wishing you happiness, health, and wealth,

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Steve Christ, Editor

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