I've tinkered with this piece some since it was posted. A Friday addition is underlined.

See this excellent piece by Joel. Microsoft may really be in very deep doo doo. Companies like IBM can make most of their money off hardware. So, it behooves them to contribute to the Linux development effort; it allows them to sell their hardware without a per-box tax to Microsoft. So, it's good business for IBM and other HW companies to keep on contributing to Linux, allowing it to get better and better.

As Linux gets better and better, there is less and less reason to buy Microsoft software. What we don't know is whether this is an asymptotic curve where the reason to use Windows will approach zero over time or whether there will always be a significant population such as grandmothers who are better off with Windows.

We just don't know. What we do know is that as more and more companies and individuals continue to contribute more and more resources to the development of Linux and Linux-compatible apps such as the free office suite OpenOffice, there will be less and less reason to buy Microsoft.

Open-sourcers tell Microsoft "Tough. Adapt or die." Sometimes it seems like this means that if only Microsoft could get out of its closed-source way of thinking by adapting to the new paradigm, it could still survive and prosper.

But Microsoft really isn't in a position to use the strategy which is working for IBM (namely, to become a hardware company). An attempt to do so at this late date would be unlikely to succeed very well; the best it could do would be to turn into a company somewhat like Dell. Yes, that's a great company, but it would mean Microsoft would be a fraction of its current size. So Microsoft is choosing not to go that route. Despite its occasional forays into hardware accessories like mice and keyboards, it has scrupulously avoided making boxes. If it did, it would give computer manufacturers much more reason to look at competitive OS's, particularly Linux. If it went that way, Windows wouldn't be the standard anymore and MS would be in the position Apple is now. So it is extremely unlikely that Microsoft will go that route.

Instead, it's hoping, almost against reason, that it can pull some totally new strategy out of its hat which will enable it to monopolize another key aspect of the computing industry. It tried and failed to do this with Hailstorm. Now it's hoping it can find another solution. But given that no one wants Microsoft to succeed in creating a new monopoly, and alternative solutions will emerge to anything Microsoft may try to do, it will probably fail.

Sell that Microsoft stock NOW.

Apple is in an interesting position since it uses an open-source OS as its baseline OS, but contributes the part of the software that the open-source world is still lacking -- a top-notch desktop environment. If the open-source world ever figures out how to make an equally good desktop environment -- something possibly requiring a focused effort by a tight group designers rather than the multitude of separate small fixes and improvements by scattered programmers which comprises Linux -- Apple will be in deep doo doo too.

That is an open question for now.

But if it turns out that the open-source paradigm really can't produce a desktop environment as good as Apple's, then the best desktop environment solution -- the one that grandmothers will want to use -- will always be proprietary.

In that case, Apple's best business strategy may be the following:

Sell an inexpensive version of the Mac OS X desktop environment that runs on Linux. Due to Apple's advantages that come with making both the desktop environment and the hardware, Apple should be able to retain a slight advantage in user experience when their desktop environment is used with Apple hardware.

Enough of an advantage that they could retain or grow their 5% hardware market share as the world moves toward open source. But meanwhile, they would also profit from selling desktop environments to a large proportion of the rest of the computing world.

That sounds like a potentially winning strategy to me.
9:52:36 AM