Linux Nips at Microsoft's Heels

Reality check: Microsoft(MSFT Quote) is not on the verge of getting swept away by a Linux tsunami, as some open-source software enthusiasts have suggested. But Linux is a small wave slowly building every day, and threatens to dampen Microsoft's higher-growth server business.

Analysts differ over when the Linux wave reaches a critical crest, indicating that point has yet to arrive. But as it builds, Linux is putting Microsoft on the defensive, forcing the world's largest software maker to cut prices and consequently threatening margins.

"There's an immediate threat [to Microsoft] right now in the operating system space," says Scott Lundstrom, chief technology officer at AMR Research. Linux is "going to force Microsoft to spend more time on security and stability, and less time on adding new features. That probably has the effect of slowing revenue growth." ...