Thursday, April 03, 2003

Ellison says OS will kill MS. In other news, dog bites man

Larry's been predicting again. He's been predicting the demise of MS forever. He's saying things we already know to be true -- that Linux and (eventually) OpenOffice will really complicate MS's life. The two most interesting points here aren't stated:

1) Microsoft IIS is free, because Apache is free. Thus the IIS 30% market share is irrelevant, because its value has been deflated by open-source competition to zero. What this means is that the market-share question isn't the most important one -- the most important question is Jack Welch's much-ballyhooed "pricing power" and this example demonstrates that with a viable OS alternative -- never mind its market share -- pricing power for proprietary software erodes dramatically. I think that the odds of people like me shifting to OpenOffice are very small. However, I think that the odds of my paying a hell of a lot less for Office 2005 are extremely good, because of the shifting power dynamic.

2) Open source is at least as threatening to Oracle as it is to Microsoft. Where's Ellison's glee on that point? It will be funny to watch the two putative "richest men in the world" and their tit-for-tat competition race each other's fortunes to the bottom over the next 5-10 years. Warren Buffett will laugh.

Ellison says, "The computer industry is finally moving from a cottage industry to an industrial industry. We're moving at breakneck pace toward the 19th century."

Has he checked what happened to manufacturing margins when the industrial revolution occurred? They went from high double-digits within guilds to high single-digits in factories. Volume massively increased. The magic of software over the past 20 years has been that it's retained high margins but achieved massive volume. This combination has bought Ellison many yachts. I really don't think he wants software margins to collapse to industrial levels... but he's right, it's going to happen anyway.

What are Oracle shares worth with 9% margins and near-zero forward revenue visibility? Hmmm.

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