The Smorgasbord
 
Saturday, 26. April 2003
The war for India's software soul

I wrote this story in November 2002. That was the time I used to write on technology for Businessworld. It hit the stands around the time Bill Gates was in India. The genesis of the idea was fairly innocent -- to examine the spread of Linux in India. What emerged, however, were fascinating insights into how Microsoft's world view of India. Since then, I've got an overwhelming response and have been innundated with requests from across the world for copies of this story. Which is why, I'm posting it here.

Prologue

When Microsoft dons battle gear, it's best to get out of the way. Pastmaster in the art of warfare, it has the reputation of having won every single battle it has fought. It decimated Apple, routed IBM, blasted Borland and broke Netscape's back. As geeks love to say, this company knows how to use FUD devastatingly - stoke Fear, catalyse Uncertainty and create disproportionately large room for Doubt in the minds of competitors. Classic Sun Tzu!

Until now, however, it has always fought and beaten foes with a definite face and form. To put UNIX out of favour with the computing world, it had to beat IBM. In its battle for supremacy on desktops, Steve Jobs and Apple Computers were Enemy No. 1. In the office productivity suite market, it needed to target Lotus and Borland. More recently, during the browser wars, it simply had to focus on Netscape. But now, for the first time in its life, Microsoft is facing an amorphous enemy. Linux, the free source operating system (OS) that has evolved over the years, owes allegiance to none and is built on the back of a world view totally alien to Microsoft. It is backed by an amazing number of supporters, big and small. The problem with Linux, in Microsoft's view, is that there is no clear target to take aim at.

That the battle has been gaining momentum is old news and has been discussed extensively. So why are we talking about it now?

Simple. The battle has spilled over into India. Look around. There are noises being made about how proactively the government is considering Linux. The Supreme Court has a few pilot projects underway. So have High Courts in Karnataka and Andhra Pradesh. The Central Excise Department has moved 1,000 desktops to Linux. The Delhi Road Transport Office (RTO) has implemented a pilot to examine its viability. C-DAC, the government's supercomputing arm, has moved lock, stock and barrel to Linux.

Then there is the National Stock Exchange - among the early adopters who used Linux to implement a solution unique to stock exchanges anywhere in the world. Corporates like Asian Paints and IDBI are cheerleading the free source OS. Others like Reliance, Texas Instruments, the Times of India group (publishers of The Times of India), Raymond, Bombay Dyeing, Godrej Infotech, HDFC Bank, Hindustan Dorr Oliver, Central Railways and Air-India have deployed Linux to power at least a part of their backends. At premier educational institutions like Indian Institute of Technology, Tata Institute of Fundamental Research and Bhabha Atomic Research Centre, Linux exists - de facto. Those not on the bandwagon, are slowly getting onto it. To get a sense of that, step into the Sardar Patel Engineering College in Andheri, Mumbai. You'll find people like Dinesh Shah, Trevor Warren and Harsh Busa of the Mumbai Linux Users Group (MLUG) bubbling with enthusiasm. On weekends, they spend time at educational institutions across the country spreading the gospel of Linux in neatly slotted two-day workshops. In Maharashtra, the clamour for their workshops has gone up because the government made Linux mandatory to their curriculum; beginning this year. "Catch them young and watch them grow," says Trevor gleefully. Clearly, Microsoft has a task on hand. It needs to control the beast before it gains too much traction in the country. As Dilip Mistry, a director at Microsoft India's Bangalore office puts it, "This country can affect our (Microsoft's) destiny."

Chapter I: The Importance Of Being In India

While there are no published numbers, back of the envelope calculations indicate Microsoft's Indian arm currently generates sales in the region of Rs 1,600 crore. That's a little over $330 million. This ties in neatly with the fact that last year, India purchased packaged software worth $409 million - of which 80% were Microsoft products. But, honestly, for a juggernaut sitting on $40 billion in accumulated cash and a projected turnover of $32 billion in fiscal 2003, $409 million is loose change. So what "destiny" is Mistry talking about?

The fast-talking British citizen of Indian origin has been in the country for barely 10 months now. He heads a team of 17 evangelists, keeps obscenely long hours, lives out of his suitcase and has an awfully tough mandate from Microsoft's headquarters in Redmond - do whatever it takes to keep Indian developers and programmers working on Microsoft platforms.

Unlike any other director heading operations in the country, Mistry has no revenue targets to meet. "The Indian systems integrator, as he moves up the value chain, will finally make a decision on what platform to settle on. We have to capture them before they make that decision. Which is why, my team is very important for Microsoft Corporation, not just for India alone."

Intrigued? Don't be. Estimates put the present size of India's developer population at anywhere between 450,000 and 600,000. That's about 10% of the world's developer population. By end-2002, India will probably have more developers than any country in the world. This is why it is important to gain control of this population.

"We are paranoid someone is going to come along and take away mindshare from developers. We're paranoid something out there is going to be more exciting to developers." Quite clearly, Mistry is talking of the threat Linux poses to Microsoft. Probe him. He'll hark back to January, when he took up his Indian assignment. Among the first things he did was to put two people from his team on Linux forums. They were asked to figure out: what is it that excites the Linux community? Is it plain Microsoft baiting? Is it Bill Gates bashing? Is it a desire to change the world? For Mistry, answers to those questions hold solutions on how to choke the Linux community in India. By doing that, the open source world loses access to one of the largest developer bases. Deprived of that base, the movement suffers and Microsoft gains a major victory. "This is primarily a battle for the hearts and minds," says Mistry.

Till sometime ago, Microsoft and Mistry didn't have to worry about losing the Indian developer. But with the tech downturn and corporates slashing IT spends, things changed. Public perception that using open source technologies reduce the cost of technology deployments convinced companies across the world to seriously consider cheaper alternatives. Consequently, the number of jobs available for developers working on these technologies went up. To get a sense of that, log on to Monster.com, the world's largest online job board. The number of people needed with expertise in open source technologies is roughly the same as that of those with expertise on Microsoft platforms.

Now add to this the fact that Indian contribution to the open source community has shot up over the last year. Chennaikavigal, a Chennai-based product company, is working on an Indian office suite designed to work on the Linux platform. In fact, language fonts for Linux are now available for practically every Indian language. There is Delhi-based Kandalya building applications that work on free and open source technologies. Then there's Anjuta, which is a development environment for C and C++ on Linux. There's also the Bangalore-based Peacock Solutions, which calls itself the first Indian company to commercialise supercomputing technology on a Linux platform. Peacock's projects include building Linux parallel supercomputers for high-speed rendering, molecular modelling, weather modelling and bioinformatics solutions. And, the list of converts to Linux keeps growing. Flashback to October 1999. I was talking to a senior Microsoft functionary on the sidelines of a conference on e-commerce. "What do you think of Linux?" I had asked him then. "What's that?" he shot back. Things have certainly changed since then. It's the 'roaches-under-the-board theory' at work, says Javed Tapia, director at Red Hat (India), a Linux distributor. Cockroaches multiply because typically they're under a board and no one cares what happens below the board. One day when you lift the board and look, there are a few million of them waiting to get out. By the time you get around to swatting them, most escape. That's pretty much what happened with Linux, chuckles Tapia. "Microsoft ignored us for too long. Thank God for that."

Chapter II: It's The Money, Honey

Forget the developer argument for a moment and focus on the economics - a packaged software market currently worth $409 million, of which 80% is controlled by Microsoft. But the legal market is small potatoes. Estimates say for every licensed piece of software Microsoft sells in India, there are eight pirated copies doing the rounds. Which means, in an ideal Indian world, Microsoft would sell software worth a whopping $2.64 billion (that's 8 x $330 million) in India. Add another factoid here. In 2001, when IT spending was being slashed across the world, the packaged software market grew 37% in India. Growth rates are expected to continue at this rate for a few years to come. Those sort of numbers cannot be sneezed away.

Now take another look at the Indian market. Two-thirds of the packaged software sold in the country is picked up by the government. The rest is largely accounted for by the private corporate sector. Now imagine a world where the government makes a conscious decision to move towards Linux.

There are precedents. Over two dozen governments in Asia, Europe and Latin America, including China and Germany, are encouraging the use of open source software - the most popular of which is Linux. In Germany, the government argued that moving to Linux would help cut costs and improve security. In an interview to BBC, German interior minister Otto Schilly said: "We are raising computer security by avoiding a monoculture, and we are lowering dependence on a single supplier."

In Taiwan, the government has announced a National Open Source Plan earlier this year. It aims to establish a software development infrastructure based on free and open source to create a foundation for Taiwan's software industry. It includes the creation of a "Chinese Open Source Software Environment" international cooperation on free application software development, and work with community colleges and non-government organisations to train 9,600 teachers and 120,000 users. Also, the national education system will switch to Open Source.

That these initiatives are being observed seriously in India is evident from the number of government projects under way on Linux. Like we mentioned earlier, the judiciary, the Central Railways, Air-India, Central Excise, Delhi RTO, various e-governance projects across the country. The list is increasing. It's a battle Microsoft cannot afford to lose.

Cut to Corporate India. At a recent Hewlett-Packard seminar on solutions for the manufacturing industry, attended by 300 CIOs, almost 60% said they would be moving to Linux-based systems. Kamal Dutta, HP India's country business manager, isn't surprised. "Enterprise customers are evolving strategies for Linux," he says.

In India, manufacturing and telecom companies are looking at some form of Linux use, though banking firms are staying away at the moment. Explains Dutta: "Banks are conservative." He doesn't expect Linux to completely take over the rest of the market but he says that he can see a "more heterogeneous environment where say core applications like ERP, CRM could run on existing systems while others like VPN, mail, load balancing could be on Linux." Hughes Software Systems (HSS) started working on Linux almost seven years back. But in the last 12 months, there has been a spurt in interest. Says HSS' head of engineering: "Telecom OEM (original equipment manufacturers) who make boxes for telecom networks want Linux solutions. It's also becoming popular in the area of embedded applications.''

To begin with, companies are deploying Linux to the extent of 15-20% of the total applications - mainly in mail servers, RAS, Web servers. And the reasons for going the Linux way is that "it decreases their dependence on the hardware vendor, the companies can negotiate with multiple vendors and hence get better deals, it lowers the total cost of ownership and offers flexibility,'' says Dutta.

That's not an argument that Microsoft is willing to accept. Argues Sanjay Mathur, head of marketing at Microsoft India: "With fewer dollars to spend on technology, some corporations have been considering Linux. The irony is that choosing Linux may be more expensive in the long run. Emerging data indicates that corporations spend more for additional software, labour and consultant costs when they choose Linux."

Precisely the reason why a ruthless battle on Indian soil appears inevitable.

Chapter III: How Ruthless Does It Get!

WHAT is clear is that Linux has made inroads into the Indian landscape. What isn't clear is: to what extent. Details are hard to come by. As Sandeep Menon, head of IBM's Linux initiative in the country says: "It is not owned or tracked by any one organisation. People simply download the software. Data from International Data Corporation, or IDC (a research firm that tracks IT trends) only shows how many CDs have been sold or how many downloads have been made." The problem with this data is that because Linux's terms of licence allow a user to make as many copies as he needs and distribute them freely, it is impossible to estimate how many copies actually exist.

The other more significant problem is that those in the know don't like to talk. Menon, for instance, knows of virtually every major Linux project underway in the country. But he doesn't like giving out details. "Strategic reasons," he explains.

It's much the same thing with Red Hat's Tapia. Now, Red Hat is the largest distributor of Linux in the world. "I can do with little publicity. In fact, I can do with no publicity." The reason, says Tapia, is that he doesn't know how Microsoft will strike back.

For instance, says a Linux distributor speaking off the record, his company had recently concluded a deal with a large private sector company to implement Linux across the organisation. This was done after the company rejected a Rs 9-crore Microsoft proposal to upgrade its systems. Even as the ink on the deal was drying, Microsoft staged a counter attack by offering to implement the infrastructure for just Rs 2 crore. "And we lost out on what could have been the best lighthouse project for Linux in the country," rues he.

Chapter IV: The Chinks in Linux's Armour

But, for all its strengths, Linux has its own crosses to bear. "It's too early to conclude that Linux will be everywhere," says Srikant Acharya, SCO's (formerly Caldera) country director for India. SCO is among the largest implementors of Linux- and UNIX-based systems worldwide. The feeling is echoed by IBM's Menon. He reckons that though Linux will catch on, the chances that it will overthrow Microsoft are thin. "My guess is both will exist." There are various reasons for that.

The most fundamental problem with Linux is that it is an amorphous entity around which robust business models are yet to evolve. Companies that have built a business around it are still gasping for breath. Take Red Hat. In spite of a 71% marketshare, it reported losses in excess of $140 million. Worse, Red Hat's total revenue is down from fiscal 2001. Now consider the other Linux vendors - SCO, Connectiva, Turbolinux and SuSE. In a bid to achieve greater strength, these vendors came together to create UnitedLinux. Mathur of Microsoft points out that Red Hat and Mandrakesoft refused to join the alliance. "The lack of unity among the Linux vendors offers evidence of continued fracturing," he says. The point in all of this is a simple one really. The largest Linux vendors are still trying to gain critical size in their home countries. Given this reality, the incentive they have to push their distribution unitedly in countries like India, where the market is still exploring the operating system, are remote. Over the last couple of months, Microsoft has used these facts to hammer home a key point with clients. That unlike others, Microsoft isn't likely to go down in a rush.

Lack of Support: Then there is the issue of government policy itself. In spite of the fact that Linux evangelists have been pushing for increased acceptance of the software in India, truth is, until now, no policy documents have been framed. Frederick Noronha, a freelance journalist and Open Source evangelist points out that Goa actually went ahead and gazetted a pro-Open Source/Free Software notification. "But how does one implement this? The departments keep flouting it. The basic flaw is with the tendering process, which can be subverted in 101 ways if the intentions are malafide. Since then, the Goa IT minister (Ramakant Khalap) has defected from the ruling party. The so-called government policy turned out to be a one-man initiative, which has all come back to a big zero."

Then there is the case of Karnataka. Here, the IT Department supports Open Source on paper. But even as the police force goes in for modernisation, it is being equipped with Windows XP machines. The only exception until now has been Kerala, where the IT policy makes it mandatory for all government departments to first consider free/open source software for all its needs. And only after open source solutions have been exhausted can the government go in for proprietary systems. The lack of legislation percolates to other areas too. In education, for instance. Dr Nagarjuna G, a teacher at the Homi Bhabha Science Centre in Mumbai and an active free software evangelist is pained as he flips through the IT syllabi of various colleges in the country. The reason is "a lack of secular IT education loaded almost entirely against free and open source software." What he means is this. In most colleges, teachers are asked to show the students how to use Excel or Word. "Why?" asks Dr Nagarjuna. "Shouldn't students be shown how to use a spreadsheet or a word processing document? What they ultimately choose ought to be up to them. Why should the state make a choice on their behalf?" He's been lobbying to get the discrepancies removed. And he's notched up some successes. But there's a long way to go.

Misunderstandings: Tapia of Red Hat faces a rather unique problem. While the interest in what he provides is high, most clients are reluctant to pay for the services he offers. The problem stems from the fact that most people imagine Linux is free. They argue that since it can be downloaded from the Internet or purchased from any vendor at a nominal cost, the prices Red Hat quotes are too high. But Red Hat's business model, like those of other vendors in the Linux space, is built around a simple assumption. While the basic software itself is free, users will pay for the support vendors provide. It's an argument that has not gone down too well with Indian business. Weaned on a steady diet of Microsoft support that comes with software purchases, the new business model is still making itself understood in most places. "I end up not signing many contracts as clients don't understand they have to pay for support. Where else will my bread and butter come from?" asks Tapia.

Epilogue

In the past, numerous contenders have tried and failed to dislodge Windows. But like we said earlier, Linux, has a key advantage. It isn't owned by anyone. To that extent, Microsoft does not know exactly whom to attack.

Take Asia for instance. Linux, outside of Japan, is being driven by the fact that the continent is less developed than the US or Europe. What this means is that there are fewer computers in the region. Consequently, there are fewer small- and medium-sized enterprises committed to Microsoft products. More importantly, these companies don't have dollars at their disposal of the kind American and European companies have. Which is why, their propensity to acquire Linux is higher.

Does that mean the future of Microsoft in this part of the world is at stake? Not quite. Sure, Linux has been growing rapidly. But it has, at least until now, been confined to servers. More importantly, this growth is coming in at the expense of older operating systems. By 2006, IDC estimates that 26% of the servers in operation will be running Linux while 56% will still run Windows. The remaining 12% will be on UNIX. As for the desktop market itself, shipment details are hazy. Compaq, Dell and, more recently, LG are shipping Linux machines into the Indian market. Until next year, when clear numbers emerge, it will be difficult to gauge how it is being accepted.

Then there are questions on whether businesses based on almost-free technology can ever be profitable - a challenge for Linux companies everywhere, but particularly for those in Asia. A recent IDC report says that although worldwide sales of servers of all types will rise 17% annually over the next four years, revenues will inch up only 1%, largely due to the low cost of Linux. In Korea, growing competition among Linux distributors have forced prices of a basic Linux package to as low as $10. A Red Hat version that sells for $80 in the US, hawks for less than $3 in China. That's hardly any money worth writing home about. As for business models built around the support and services models, they're still nascent and have some way to go before they mature. It's a long haul - an awfully long haul.

 
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