If I had told you back in 2006 that in 10 years, Microsoft (MSFT, Financial) would be wooing the open source community of developers around the world, you could have gotten away with laughing in my face. Today, I’d be having the last laugh because 2016 is indeed the year of Microsoft’s Open Source Embrace.
Admittedly, the company’s transition to accepting open source technologies and capabilities has been slow. But the constant stream of announcements coming out this year makes it very clear how the company envisions the future. In a world dominated by Facebooks, Googles and Apples, Microsoft needs to do everything in its power to stay relevant, and the shift to embracing open source might be the very thing they need.
Let’s first take a closer look at some of the important announcements that came from Microsoft in the past year.
July 16, 2015 - Microsoft announced it will offer “limited support for major Linux distributions, third party and open source technologies on Azure.”
Nov. 4 2015 - Microsoft and Red Hat team Up to Offer Linux on Azure Cloud.
Feb. 24 2016 - Microsoft buys Xamarin, a leading cross-platform mobile app developer with a community of 1.5 million developers.
March 30, 2016 - Developers can run Bash Shell and user-mode Ubuntu Linux binaries on Windows 10.
And the list actually goes on, but you can see the company taking the effort of knocking on the open source community’s door in a way that has never before been done at Microsoft.
In fact, the animosity was so strong at one time that Steve Ballmer, Microsoft’s ex-CEO called Linux — the open source operating system loved by developers all over the world — a “CANCER.” But that was way back in 2001 when Windows was trying to get into every home in the world.
Why this apparently sudden change of heart? Why is the current CEO working double-time to embrace a technology community that was shunned by his predecessor?
The answer lies in the dramatic change in the strategic direction of the two CEOs. Ballmer wanted to maintain the status quo, which was essentially an attempt to take over the world’s entire PC market save for the “insignificant” crop of Mac users that Microsoft considered to be outcasts.
But something happened on the way to Windows heaven. Mobile devices.
While Microsoft was busy getting everybody on Windows, Apple’s iOS and Google’s Android silently went about their business, gradually dominating the space and pushing out every other player including Windows Phone. By the time Microsoft realized that they would have to play hard ball in the mobile game to stay relevant, it was too late. Seven billion dollars and one epic Nokia fail later, Microsoft realized that they had completely missed the mobile bus.
The funny thing is, it’s that very same anti-open-source mentality that brought about their downfall. Apple escaped it because they had the hardware and the branding backing them. Android, of course, is the embodiment of open source. Microsoft’s Windows Phone, however, was neither here nor there — and the company ended up paying a hefty price for their misplaced bet.
The real reason behind the failure of Windows Phone was not that they were unable to gain market share. It’s the fact that they failed to be inclusive in their dealings with the developer community. By shunning open source, they alienated millions of developers that were working on Android; and they also failed to make their ecosystem commercially attractive enough to entice iOS developers into their fold.
But how did this love for open source suddenly well up like a spring in a desert? That’s the interesting part.
The influence of cloud
As Satya Nadella took over the reins from Ballmer, Microsoft altered its course towards a mobile first, cloud first goal. But there was a problem: you can’t become an Infrastructure-as-a-Service company without the acceptance of the world’s largest development community that loves to work on open source projects. Considering that the competition — namely, AWS and IBM — had a huge head start on the cloud game, it would have been akin to shooting themselves in the foot all over again if they planned on pushing Windows Servers to developers around the world whose preference was the open source Linux Servers.
And out of that was born the “limited support for major Linux distributions, third party and open source technologies on Azure” announcement on July 16, 2015 — almost exactly a year ago today.
That decision has already started to justify itself. Nearly one in three virtual machines on Microsoft’s cloud platform, Azure, now run Linux.
“In just a year's time we've gone from one in four of our Azure virtual machines running Linux, to nearly one in three.”
- Mark Russinovich CTO, Microsoft Azure
But the shift to adopting open source is not just a random decision by Nadella. It is borne out of a shift in the enterprise industry. According to market research company Forrester Research, more that 40% of Chief Information Officers consider open source adoption as being critical to their businesses over the next year. The main reason for this is low cost and high agility, as well as avoiding typical lock-in periods by proprietary vendors.
If Microsoft had once again alienated this very significant segment of the world’s developer population, they would have helped Amazon and IBM run all over their cloud business and possibly kill it even before it got off the ground - just like they did with their mobile operating system.
Fortunately for Microsoft, Nadella has been astute enough to realize this and has been instrumental behind the company’s adoption of their new policy towards open source.
The investment angle
As an investor, you’re probably wondering why all of this is relevant to you. I think it’s critical that you know the story behind the new Microsoft.
In my previous article “Microsoft is Dead, Long Live Microsoft.”Â I wrote about how the company was moving towards an “-as-a-Service” model because that was the need of the hour. The new Microsoft is far more nimble and flexible because of Nadella, and this is where investor confidence should rest — in the leader, not just in the nuts and bolts of the business.
It is the captain of the boat, after all, who either gets it to its destination or lets it flounder and toss about in an uncertain ocean.
Disclosure: I have no position in MSFT and no intention to initiate any position in the next 72 hours.
Start aÂ free 7-day trial of Premium MembershipÂ to GuruFocus.