Microsoft's biggest enemy now: Apple, Linux or itself?

CIO - In a meeting with financial analysts last week, Microsoft Corp. CEO Steve Ballmer laid out what he thinks are the biggest threats today to Windows on the client side. Surprisingly, Apple Inc. wasn't No. 1. It wasn't No. 2 or 3, either.

Referring to a pie chart at the meeting that gauged threats to Windows, Ballmer said that Windows itself, both licensed and pirated, were the top two threats to Microsoft in the client operating system space, followed by Linux, then Apple. Ballmer quipped: "Windows license, No. 1 market share. No. 2 market share goes to Windows pirated or unlicensed. That's a competitor that's tough to beat; they've got a good price and a heck of a product, but we're working on it."

Ballmer followed with a carefully worded mockery of Apple's "point or more" market share growth over the past year: "A point of market share on a number that's about 300 million [number of PCs shipped worldwide in 2008] is interesting. It's an interesting amount of market share, while not necessarily being as dramatic as people would think."

"No. 2 market share goes to Windows pirated or unlicensed. That's a competitor that's tough to beat; they've got a good price and a heck of a product." Microsoft CEO Steve Ballmer, quipping about how Microsoft has to compete with itself.

Though Linux's 0.8% OS market share hardly qualifies as a threat, Linux does compete with Microsoft in more areas than Apple, and it is much cheaper. "Cheap" takes on an appealing sound in an economic recession.

Clearly, Apple has been hit by the economic downturn in the past two months. It has seen dips in Mac sales and market share, and the company even announced a small round of layoffs on Wednesday.

But is Ballmer truly wary of Linux? Is he just trying to disparage Apple as usual? It's hard to tell. Industry experts said the folks at Redmond will continue to face threats on all sides and even from within.

Linux Attacks on More Fronts

Matt Rosoff, an analyst at independent research firm Directions on Microsoft, mostly agreed with Ballmer about the threat pecking order, saying that Linux trumps Apple as a threat, but that Microsoft's biggest rival is itself.

"Macintosh computers are a threat in precisely one market -- upscale consumer PCs, a small part of the overall PC market," Rosoff said.

"Linux is a bigger threat because it competes in more areas such as server OSs, embedded systems and increasingly on client PCs with the rise of low-cost netbooks," he said.

But Microsoft's biggest threat to Windows growth, said Rosoff, is the idea that existing PCs with older versions of Windows are good enough. "Consumers and businesses may have no incentive to replace them until they break," he said.