Microsoft is the classic “perception” stock: shareholders in a company trading at 57 times its earnings (making it the most valuable company in the world at $260bn) will never live to see the investment actually make their money back from dividends. (For one thing, it doesn’t pay any.) It was the company’s stranglehold on PC operating systems (OSs) that allowed it to gain pre-eminence. The Windows “franchise” has been extended from the desktop down to the smaller, handheld computers Gates thinks will be the true face of personal computing in the future; and up into the enterprise-level servers that now run our businesses. But the fact that Microsoft software is so pervasive is not only a major risk issue (who wants to be totally reliant on one supplier?); it could be costing your company money in pricey licences for software that doesn’t even work properly. However, two events in the last month show that Gates & co are not resting on their laurels. Instead, they are taking the advice of Gates’s oppo at Intel, Andy Grove, and accepting that “only the paranoid survive”. The first sign that Microsoft was looking over its shoulder came in a submission the company made to the SEC in New York, citing Linux, a free operating system which is similar to Unix, as a major threat to its business. Linux, invented by Finn Linus Torvalds in 1991, has a very stable and heavily regulated (by Torvalds and his agents) “kernel” – the heart of the OS. It’s completely free (www.linux.org), although most companies use a range of add-ons to make it suitable for running a corporate network or data processing system. These are created by a huge community of developers and programmers the world over, many of whom also sell their services and products on a commercial basis. With the growing complexity of Microsoft Windows NT (version 5 will have over 30 millions lines of code, compared to Linux’s 750,000), and fears for both its stability in large organisations and its security system, many corporate IT decision makers are looking to the simple, proven and flexible Linux as a (very) cheap and workable alternative. It even works on a range of processors, like the high-end Sparc machines, Alphas, VAXs and even Apple Macintoshes as well as the pervasive Intel chips. And last month Dell admitted that it was pre-installing the free OS onto many of the PCs it is shipping to corporate customers. Other IT big-hitters are also banking on Linux, including Informix, Oracle and Sybase who have said they are working on Linux versions of their applications. The existing popularity of the OS among the developer community means that there is already a large body of applications ready to roll on users’ machines. Significantly Corel, which owns Wordperfect, the predecessor to Microsoft as number-one office productivity software, is also backing Linux with new products. Perhaps the most important company in the Linux world is Red Hat, which is providing exactly the right kind of Linux support to corporations around the world – that is, a range of software, tailored builds of the Linux system and professional support services. Intel and Netscape both now have an equity stake in Red Hat. What these companies appeared to have understood is that businesses want a nice stable platform for their IT which will give them the flexibility to change and the option to tailor their systems without making them incompatible. The Linux kernel is very stable – because it’s also quite old – and very open, with no nasty surprises hidden by a proprietary manufacturer. No wonder Gates is scared. But then, the business world has been expressing concerns over NT for some time, and Linux is hardly new. The same could be said of the other threat Microsoft is facing, to its minimised OS for smaller devices, Windows CE. And like Linux, the opposition isn’t from the US; it’s here in the UK, actually. It’s Psion. True, Psion’s founder, David Potter, is South African, but who doesn’t feel a tinge of national pride when they hear that in an internal memo Gates identified Psion’s operating system, EPOC 32, as the major threat to his business over the next five years? This OS was rolled out last year on the Series 5 handheld computer, the ergonomics of which alone make any of the handheld computers using Windows CE look laughable. But Potter’s deal with key mobile phone vendors was the real wake-up call for Gates. By joining Ericsson and Nokia in the formation of a joint venture, called Symbian, to promote and develop the EPOC OS, Psion is virtually guaranteeing that it will be used in the mobile phones of the (fairly near) future, which will double as all-round communication and computing devices. Is Microsoft in trouble, then? Well, these new threats are aimed at fundamental aspects of its business. If Microsoft loses domination of the OS market, it loses everything. And what does it mean for business – for you? It’s hard not to knock Gates and Microsoft, and every time your Windows-based PC crashes or does something unexpected, you probably curse him and his company too. But the strategic dominance of Microsoft has to be broken. If your company gets locked into a Microsoft way of life and Gates stumbles, it could cost you everything. IT is so important now, the stakes are so high, that being a one-supplier company is not just risky, it’s downright dangerous. The Department of Justice in the US certainly thinks so, and as we go to press, the seven-year-long investigation of Microsoft is culminating in an anti-trust trial aimed at breaking the company up (or at least proving it should be broken up). No one really wants that level of government interference – and ironically enough, Linux and Psion might be enough to do for Gates before regulators get through with him. So before you sign off that requisition for oodles of new hardware and a fat licensing agreement so that your company can become reliant on Windows NT 5, consider the options. Because anything which worries Bill Gates must also carry some good news for his customers.