Slideshow: Microsoft's Top 12 Rivals

How Microsoft’s battles are stacking up

Microsoft has so many rivals it’s hard to know which are most likely to keep Steve Ballmer up at night. Apple? Google? Every Linux vendor ever? Microsoft tries to dominate every software market. Windows and Microsoft Office would be enough to sustain most vendors, but Redmond wants more: databases, cloud computing, e-mail, search, virtualization, unified communications, Web browsers, mobile phones and tablets, even video games. Here, we’ll focus on the rivals we think pose the biggest threat to Redmond.

By Jon Brodkin

Apple

Apple passed Microsoft in market capitalization to become the world's most valuable technology company. It’s easy to see why. Although Microsoft nearly snuffed out Apple by dominating the PC market with Windows, Apple's Mac business has remained lucrative and Steve Jobs came roaring back with the iPod, iPhone and iPad. Windows Phone 7 hasn’t halted Apple’s momentum, and Microsoft's overhaul of Windows to adapt to touch-screens indicates Redmond realizes Windows 7 isn’t a consumer’s first choice for tablets. Unless customers start demanding a Windows start menu on their iPads, Microsoft won’t be close to catching Apple.

Google

Google could become the second technology company to pass Microsoft in market capitalization. They compete on so many fronts it takes a while to list them all, from Google vs. Bing and Android vs. Windows Phone 7 to Windows vs. the not–quite–yet–released Chrome OS. Microsoft’s problem is that Google has shown the ability to enter new markets and dominate them, just like Microsoft did so many years ago with Windows, Windows Server and Microsoft Office. Microsoft can keep raking cash in for Windows and Office licenses, but in the worlds of Web–based computing and mobile devices, Google is the winner so far.

VMware

VMware thinks it can diminish the relevance of Windows Servers in the corporate data centre. With financial backing from EMC and a team of ex–Microsoft executives at the helm, it has argued its virtualization and management tools are stealing the job of managing hardware from Windows Server. VMware had a huge head start, but it’s only a matter of time before Microsoft’s Hyper–V is good enough for most customers. Although Microsoft is the server virtualization underdog, the ability to bundle Hyper–V with Windows Server gives the company a powerful weapon. VMware will have to lower prices and execute flawlessly to stay No. 1.

Red Hat

It’d be tough to convince people Microsoft doesn’t hate Linux. Steve Ballmer once called Linux a cancer. Red Hat waves the Linux flag perhaps better than any IT vendor, and it argues only itself and Microsoft have the pieces necessary to build cloud networks, including server virtualization, an OS, orchestration and management tools, middleware, and application development frameworks. Microsoft tools are entrenched in the enterprise, but Red Hat lures its share of customers with the promise of cheaper software and interoperability. While it can cut into Microsoft’s market share, it’s far too small to pose an existential threat.

Oracle

Oracle makes this list because Steve Ballmer says so. The Microsoft CEO pegs Microsoft’s top rivals as Google, Apple, Oracle, VMware and open source in general. Oracle is quite diversified and offers Redmond a challenge in several software segments, including business intelligence and CRM. Oracle’s acquisition of Sun Microsystems also puts CEO Larry Ellison in charge of open source products such as Java and OpenOffice, which rival Microsoft .NET and Office. Ellison is one of the few CEOs savvy enough to give Microsoft headaches, and if he ever finds that Oracle is missing something he just buys the company making it.

Salesforce

One of Microsoft’s biggest cloud rivals, Salesforce’s SaaS tools and its platform–as–a–service offerings each present obstacles. Microsoft is making a bigger push with its Dynamics CRM Online software. On the PaaS, Microsoft has lured 31,000 users to Windows Azure, which hosts 5,000 applications. Force.com is well ahead with 185,000 apps, and is teaming up with VMware to build a Java-based cloud called VMforce. Analysts say Azure could make headway in the market for .NET users who want to build apps in the cloud, but as of now this market is tiny compared to the one led by our next Microsoft rival.

Amazon

Even if Microsoft can topple rival PaaS clouds Force.com and Google App Engine, it still has to contend with Amazon Web Services, including the hugely successful Elastic Compute Cloud. Microsoft is betting customers want highly abstracted developer tools, rather than direct access to virtual machines and storage, but so far Amazon’s infrastructure–as–a–service vision is winning. PaaS adoption is “anemic” compared to Amazon–style clouds, says Gartner. Early customer reviews on Azure are good, but based on today&rsquos numbers Microsoft is looking like a niche player.

IBM

For all the noise made by Google Apps, IBM’s Lotus Notes is the stronger player in the business e-mail market. Cloud-based e–mail will be a major part of each company’s strategy, but Microsoft is doing well both on–premises and in the hosted world with Exchange Online. IBM leads Microsoft in database revenue, and Big Blue has Microsoft competitors in a variety of fields. IBM teamed up with Canonical and Red Hat to develop Linux-based alternatives to Windows. IBM’s WebSphere goes up against SharePoint. And Microsoft doesn’t have a computer that plays “Jeopardy!” and goes out for drinks with Alex Trebek. You win, IBM.

Sony and Nintendo

Sony and Nintendo aren’t partners, of course, but we’ll put them in the same rivalry here because Microsoft has put much of its development resources behind the Xbox 360 and Kinect in an effort to outshine these two video game giants. Xbox and Kinect may be the best example of Microsoft connecting with a younger audience. Kinect looks like the most innovative video game product released in the past year, but with Nintendo unveiling a 3D Nintendo DS handheld, Microsoft still has no answer on the mobile gaming front.

Research in Motion

There’s just one market where RIM goes against Microsoft: mobile, including smartphones and now tablets. And RIM’s BlackBerry is way ahead of Redmond. Windows Phone 7 will have a tough time luring consumers away from iPhones and Androids, and the presence of BlackBerry ensures Microsoft’s efforts to get phones into the enterprise will be a tough sell. In Q4 2010, Microsoft accounted for just 3.1% of smartphone shipments worldwide, according to Canalys, compared to 14.4% for RIM, which was in fourth behind Android, Nokia and Apple. If RIM struggles, it will be because of iPhones and Androids, not because of Windows Phone 7.

Mozilla Corp.

Although Chrome has the momentum in the browser market, it’s still Firefox that’s in second place behind Internet Explorer. Microsoft is trying to gain back lost share with Internet Explorer 9 beta, but IE market share has been dropping almost every month for several years, according to usage tracker Net Applications. With every passing day, the built–in advantage Microsoft has from bundling Internet Explorer with Windows is eroded as users discover that newer browsers offer benefits over IE and can be installed with a few mouse clicks. Only a wildly successful IE9 launch will be enough to reverse Microsoft’s slide in browser share.

Cisco

Cisco has built out a robust and widely used unified communications system, with products like TelePresence, WebEx and VoIP phones. Microsoft is making unified communications an even bigger priority with Lync and Lync Online, the successor to Redmond's Office Communications Server. Microsoft has lowered the price with this latest generation, but enterprises interested in cloud–based software will have to wait because Lync Online won’t be available until the release of Office 365, and the initial version of Lync Online won’t have all the phone capabilities available in the on–premises software.