Japan Strikes Against Microsoft with Open Source

In an effort to target Microsoft and the operating system industry, Japan has proposed an Asian open-source operating system. Initially, the country was a major player in the PC market, but leading light NEC crumbled under its attempt to digest Packard Bell, a U.S. company, and Japan lost any chance of holding — let alone gaining — a significant market position outside of Asia.

Sony, Fujitsu, Hitachi and Matsushita Electric have made runs at the software market, but outside of Asia they have had little success; indeed, in software, Japan is almost insignificant internationally. You might recall that Hitachi and Fujitsu, both Japanese companies, in the past attempted to shift the overall computing business to Japan and repeat the success they had achieved in the consumer electronics market.

Hitachi and Fujitsu failed in this endeavor largely because the technology and channel gap was simply too wide to close. While their attempt, which included efforts to acquire IBM’s intellectual property, was partially successful, IBM’s direct sales channel was virtually invulnerable to attack, and IBM held ground despite the best efforts of the U.S. government.

The current environment with Microsoft is much more dynamic. Microsoft’s products are largely sold by others who will generally move where the revenue is. More importantly, these channel partners are themselves under siege by an economy that is struggling to recover against less-than-acceptable profit margins. Could there be an opening for open-source software to gain a foothold in Japan?

Microsoft’s Achilles Heal

Many of the critical Asian channel partners have a growing need to differentiate themselves from the increasing dominance of U.S. tech companies and are looking to nonstandard technologies and platforms to do so.

While it might surprise you to know that Microsoft actually has a loyal customer base and polls as one of the most trusted vendors, the company also polls as one of the least trusted vendors. Microsoft is the only vendor I’ve ever seen enjoy this dichotomy.

This makes it difficult for the company to execute market shifts because, in some scenarios, if the company were to fix the problems with the potential customers who don’t trust Microsoft, it would still take years to gain those customers’ trust — and the company’s actions could cause at least some of the companies that do trust Microsoft now to lose that trust immediately.

Clearly, with proper analysis, the company should be able to drill through this issue to arrive at the proper fix. However, its recent pricing actions — even with all the analysis — had a disastrous and unintended impact on Microsoft’s relationship with its customers, particularly government customers.

This situation suggests that Microsoft might actually lack the skills needed to combat the open-source threat effectively.

Out of North America

The market has already begun to shift. One of the largest trends in the market today is offshore outsourcing. This trend has been accelerated by the emergence of open-source software, which shifts value from intellectual property to labor and jobs — and then to locations outside the United States where labor is the least expensive. This shift has not yet benefited Japan, though it currently benefits countries like India and China, where labor is less expensive.

The Japanese are anything but stupid, and they can, simply by looking at Microsoft, see the tremendous value that is up for grabs in the current environment, a realization that has no doubt resulted in their proposal for a Japanese Open Source platform to rival Windows.

The Japanese have the verbal support of China and South Korea to execute this proposed program, according to Reuters. If successful, the program would result in an Asian standard that could form the basis for a shift of power from North America to Asia — at least on the software front.

While this initial effort probably will fail, primarily because it is highly complex — Japan, China and South Korea historically have had significant problems in working together — it does signal a significant and growing exposure of the U.S. software industry and particularly of Microsoft.

Steal a Market

Using the security concerns that have exploded after the September 11th attack on the United States as a cornerstone of the argument, plus the recent spat of very damaging viruses as a smoking gun, Japan is demonstrating that even states that typically do not cooperate can agree that something must be changed.

Not surprisingly, what the country advocates is that governments seize control of the standard operating system and, assuming that Windows and the computer market are linked, gain control of the computer market as a result. The end result, according to their arguments, would be a government-sanctioned, secure and reliable platform.

Of course, when governments talk security, typically they mean security from everyone else but them, and they have a nasty habit of wanting an easy way in — a back door — for reasons of national security or for fighting crime. This makes it very difficult for a platform developed by one government to be used by another.

Obviously, one of the big problems Japan will have to overcome is that China and South Korea likely will not agree that Japan should own the resulting platform. China already has a favored platform in Red Flag Linux.

Software Bureaucrats

If these governments show some success in developing an approved software platform — which is likely in the current environment — it is just as likely that other states will see both the opportunity and the risk and then seek to form similar alliances.

In other words, just starting this trend, regardless of whether the initial move is successful, could do damage to Microsoft and the American computer vendors. Some countries might actually align themselves with Microsoft if all they wish to avoid is being issued directives by another’s software bureaucracy.

However, the end result could be a level of fragmentation that mirrors the state of the telephony and power industries, and while it will likely increase both security and reliability — at least in the short term — it could end up regulating the software industry on a regional basis, destroying much of the long-term opportunity for growth, innovation and profit for the segment.

Microsoft’s Response

Microsoft has at least three counters it can deploy to stop this initiative:

  • Sow dissent between the parties so that they simply cannot execute the plan;
  • anticipate the resources that would be used to create the platform and acquire control of those resources; or
  • step out of the box and quickly provide an acceptable solution.

    This last tactic would do the most in terms of enabling Microsoft to hold its position and perhaps even kill the trend. But it would require the company to step sharply away from its current platform and assemble or acquire something much more like Unix. Windows 2005, also known as Longhorn, might be that product, but two years is a lifetime in this business — and it isn’t clear that the company even has two months.

    When governments start setting strict standards, there is cause to be concerned that the market might become hostile to most vendors. When governments start building products in a segment, it might be time to pack the bags and look for another industry.

    Rob Enderle, a TechNewsWorld columnist, is the Principal Analyst for the Enderle Group, a company founded on the concept of providing a unique perspective on personal technology products and trends.

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