A Stealth Attack on Linux from Microsoft?

It's paying a licensing fee to SCO -- and techies smell a rat

When SCO Group (SCOX ) of Lindon, Utah, sued IBM (IBM ) on Mar. 7 for $1 billion, claiming Big Blue unlawfully handed over parts of SCO's Unix software code to Linux developers, techies let out a Bronx cheer. IBM's huge investment in Linux has legitimized it with corporate users. Linux watchers perceived a lawsuit as the last desperate act of a struggling company.

But on May 19, SCO got a hand from Microsoft (MSFT ) Corp., which agreed to license SCO's Unix technology. That sent shudders through the industry: "Microsoft is legitimizing this complaint," says analyst Tony Iams of D.H. Brown Associates, a market researcher in Port Chester, N.Y.

Many Linux fans and industry analysts see an ulterior motive. They don't believe Microsoft has any fear of running afoul of SCO's intellectual property rights, thus it didn't really need to license Unix from SCO. They see the move as a way to cast doubt on Linux, which poses the greatest threat to Microsoft's hegemony. Linux is now No. 2 in the $50.9 billion market for server computers, with a 13.7% share to Microsoft's 59.9%. "This creates fear, uncertainty, and doubt about Linux licensing," says software analyst Rick G. Sherlund of Goldman, Sachs & Co.

Microsoft denies that the licensing deal with SCO had anything to do with the IBM suit or is an attempt to thwart Linux. And an ulterior motive? "I can see how people would see that, but SCO approached us," says spokesperson Alex Mercer. Microsoft quickly agreed to pay for a license to avoid litigation. While it doesn't sell Unix, it sells technology that allows Windows-based machines to connect with those based on Unix.

But Microsoft's use of trickery in the past feeds doubt about its motives. One famous example: Nearly a decade ago, it acknowledged creating a bogus error message in a test version of Windows 3.1. The message gave users the incorrect impression that the software wasn't compatible with a rival operating system, DR-DOS. More recently, Microsoft responded to the catchy ads from Apple Computer Inc. that tell the stories of users who switch from Windows PCs to Macs. Microsoft created a Web site featuring a user who was thrilled to switch from a Mac to a PC. Within a few days, though, it turned out that the user worked for a P.R. firm hired by Microsoft. Microsoft shut down the site.

The company has made it clear that it sees Linux as Public Enemy No. 1 and it will go to great lengths to defeat it. According to internal Microsoft documents reported on by the International Herald Tribune, Microsoft instructed salespeople to discount sharply against Linux in a way that some legal experts believe may violate European antitrust law. What's more, the documents revealed that Microsoft employees fabricated identities when they attended Linux conferences. Microsoft denies there's anything wrong with its discounts, and says it will punish any employees who misrepresented themselves.

So will the moves by SCO and Microsoft cause trouble for Linux? So far, users are cautious. One exec at an investment bank that is replacing thousands of servers with Linux machines says his company's legal team is investigating the matter. While management is taking the issue "somewhat" seriously, he says, "it hasn't affected our decision-making to date." Still, analysts warn that the prospect of an extended legal battle could cause corporate customers to pull back on adopting Linux.

A quick resolution seems unlikely. In an internal memo obtained by BusinessWeek, Robert Samson, Big Blue's vice-president of systems sales, wrote on May 16 that IBM "will continue to vigorously defend" itself. SCO has not yet identified the code it says is improperly in Linux, so experts have not been able to judge the validity of its claims.

Creating fear, uncertainty, and doubt is so common in the tech industry that it has a shorthand name that everybody understands -- FUD. It's unlikely that FUD itself will sink Linux, but it sure could take the wind out of its sales.

By Spencer E. Ante in New York and Jay Greene in Seattle

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