Feeling the Heat in Redmond

Add to those costs the restrictions Microsoft is placing on how companies can use its software and you see why some customers are cranky. One new policy bans companies from using Microsoft tools to develop software that runs on non-Microsoft operating systems. It's one thing to tell customers they have to pay up for yet another upgrade; it's another to tell them they can't distribute original source code or use their own handiwork on another OS.

For the most part, Microsoft customers have done little more than grumble about such treatment. That's because alternatives from the likes of Apple, IBM, Novell and Sun have their own major drawbacks, and switching from Microsoft is a costly undertaking in itself. But enter Linux and the exploding number of applications that run on the open-source OS, and the competitive landscape looks more inviting. Linux is no silver bullet; its biggest downside remains the dearth of experts to support it. As the platform has matured, however, it has gained enterprise credibility.

One early convert is one of the vendor's biggest and most conservative customer bases: government. The U.S. Department of Defense, for instance, is using open-source software for 250 applications. In Germany, the government is steering federal, state and local offices away from Windows and toward Linux as part of a deal with IBM to offer steep discounts on IBM hardware loaded with the OS.

Some enterprise customers, meanwhile, are making noises about Microsoft's complex licensing terms. In a recent survey of 1,400 businesses by Information Technology Intelligence and tools developer Sunbelt Software, 37 percent of respondents said they won't upgrade to Microsoft's new licensing plan, while 38 percent said they're seeking alternatives to Microsoft products. "Microsoft has gone too far this time, and we will not be held hostage," one customer CEO recently told InternetWeek.com.

Interoperability is another big issue. Microsoft has led too many customers down development paths only to change course, hoping to capitalize on some new market trend. Life Time Fitness, the subject of our On Location case study this issue, switched from Microsoft to Java precisely because its IT organization didn't trust Redmond's commitment to open Web standards.Unfortunately, Microsoft's reaction to customer dissension often is to reach for the stick rather than the carrot. It's so concerned about the open-source incursion at the DoD, for instance, that it's reportedly resorting to scare tactics, trying to convince officials that Linux compromises security and infringes on Microsoft's intellectual property.

Microsoft has been more constructive with customers on the security front, building better features into its Windows, e-mail and Web server software, while developing programs to help administrators install and configure those systems and fix flaws. The company still has a ways to go on security (patch management shouldn't be an IT professional's full-time job), but at least it's taking positive action.

Increasingly, Microsoft will be forced to approach other customer concerns with the same sensitivity and savvy. Despite its continued market dominance, Microsoft won't be able to call all the shots anymore.