I was personally rather astonished to hear that Sun Microsystems and Microsoft had buried the hatchet in their long running war of words. This startled me, because I had become used to Sun being the only holdout in a world where Microsoft makes the rules. So apparently the Silicon Valley maverick has been defeated and forced to compromise with the giant from Redmond, Washington.

This is a little sad if you are one of those people who root for the underdog. I confess to being inspired by the fabulous '1984' ad by Apple that announced the arrival of the Macintosh, the white knight that would do battle against the gray hordes of the (then) Big Brother and Darth Vader, namely IBM. Of course, IBM has become over time the respected and dignified elder statesman in the industry, but at that time, its tactics of FUD (fear, uncertainty and doubt) factor terrorised all competitors.

I should also add the disclaimer that I own Sun stock; so I have a vested interest in the fortunes of the company. It is a little hard to see how Sun can make much headway against such established giants as Dell, HP and IBM, if it is to follow their business model of leaving much of the R&D (and the profits) in the hands of Intel and Microsoft. "Is Sun the new Apple?" is a question tech weenies have been asking for some time.

I wouldn't write Sun off, for it has come back from the brink before, but things may be different this time. Its business model, where it does all the R&D for itself, including in chips, hardware and software, may be difficult to maintain unless it is able to innovate and generate large margins.

However, Sun recently announced heavier than expected losses, and also did something unprecedented: it proposed a 10% cut in R&D expenditure. This is something it has never done before. Therefore, it is clearly changing its business model, perhaps finally admitting that it has failed to monetize its software investments. For instance, Sun got plenty of brand recognition, but precious little money, out of its Java efforts. This has to change; this may be why it has appointed its software head the new COO.

Sun, as well as Microsoft, are responding to changes in the software environment. Interestingly enough, Microsoft has also done something unprecedented. A company well known for its willingness to fight legal battles to the death, Microsoft changed tack recently and settled a number of suits. One with Sun involved paying Sun $2 billion; a couple of others were in the $400 million range, if I remember right.

It may be that Microsoft is seeing the writing on the wall: that its ability to dominate the industry is being eroded. On the one hand, foreign governments are beginning to take tough measures against it. It was fined some 500 million euros by the European Union. It is not even the money that hurts, but the idea that the Europeans are looking at Microsoft as an American 'champion,' much the way the Americans view Airbus negatively because it is supported by public European money. Besides, a number of other governments, including China, Brazil, and Mexico, have started looking carefully at open source alternatives.

There is an interesting corollary here to the outsourcing debate raging in America these days. If the US is justified in raising non tariff barriers against outsourcing services to India, would India be justified in saying, 'No more government purchases of Microsoft products'? Are the two comparable?

Another issue: despite its superlative brand recognition and huge war chest, Microsoft has not managed to dominate in several markets that it entered: the cell phone market, where Nokia would prefer to keep key software in its own hands; the game player market, where Sony's own powerful brand and R&D prowess give it a level playing field; the web access market, where Yahoo! and Google are giving MSN a run for its money; or the enterprise software market, where it bought Great Plains Software, it has not been able to dent SAP's lead.

In a way, it could be said that both Sun and Microsoft are suffering from an invisible and amorphous enemy: the Free Software Movement that has created products such as GNU/Linux, as well as an entire philosophy of individual liberty versus corporate ownership: the Cathedral and the Bazaar, http://www.firstmonday.dk/issues/issue3_3/raymond/  in the superb commentary by Eric Richmond.

I wrote some time ago about GNU/Linux, and I was pleasantly surprised to get an email from Richard Stallman himself, the originator and inspiration of the Free Software Foundation; and he suggested that I should be careful to distinguish between 'free software' and the 'open source.' I hope I understand correctly: the 'free software' people work under the GPL or 'copyleft' which means that the code is free but any change you make has to be, in turn, shared with the entire community, thus ensuring that all benefit, which is indeed revolutionary and egalitarian. The 'open source' people simply make source code available.

Anyway, after years of toil by thousands of volunteers sharing their time on the Internet, the GNU/Linux system has more or less come of age. It has been a legitimate contender on server systems for some time, and has prevented Microsoft Windows from dominating on these large centralized systems as it has on desktops. GNU/Linux is also now seen increasingly as a capable massively parallel system: clusters of these systems can now be pulled together to work in the near teraflop range, among the top 500 fastest systems in the world.

But the big news is that GNU/Linux is also becoming more visible on the desktop. A number of vendors are offering something along the following lines: the Mozilla browser, a desktop interface like Ximian or KDE, the OpenOffice suite of word processor, spreadsheet, presentation graphics, etc, a mail client, and so forth. This is not as seamlessly put together as Microsoft's Windows desktop, but with a little practice, it is quite enough.

I know a number of software developers who are using something like the above as their engineering environment. It seems to work just fine for them; it remains to be seen if this is something non technical end users can deal with, as used as they are to Microsoft standards. My own computer came bundled with Lotus Smartsuite, which I find is mostly compatible with Microsoft file formats, with occasional glitches.

There is no question that cost conscious purchasing managers are viewing this combination with favour, because it reduces the system price. This is part of the reason some vendors are now offering desktop machines for $400; in India, I think Rs. 20,000 can buy a branded PC with a branded GNU/Linux like Redhat on it.

Besides, a number of national governments are making noises about a clear preference for GNU/Linux type products where they can 'ee under the hood,'as it were, and also have their own local engineers modify it for, say, local language compatibility. Government policies in such areas can have a large effect: for instance, a good bit of India's software prowess comes from the clear directive in the 1970s to concentrate on UNIX and similar open systems after the IBM fiasco.

All this is a danger for Microsoft, as its profits come primarily from the margins on the Windows operating system and the Office suite of products. If there is a cheaper substitute which is almost as good, Microsoft will be forced to reduce its prices. Similarly, Sun has been hurt, even more dramatically, because people started substituting cheaper Intel based GNU/Linux servers for Sun's powerful SPARC servers running its own operating system, Solaris, a version of UNIX.

Sun is more vulnerable today than Microsoft is, because Sun's market share in servers was never more than about 30%, and it has now fallen much below that. Microsoft continues to have a 90% share on the desktop, and perhaps a 50% share in server operating systems. But in the long run the impact of GNU/Linux on both companies could be very nasty.

This is all very ironic. In the 1988 to 1990 period or so, there was an opportunity for UNIX to become the desktop operating system of choice. At that time, Microsoft did not even have a good windowing interface: you used a command line interface. Companies like AT&T, Sun, HP, Data General, Toshiba, DEC and IBM got into a pig headed little OS war about precisely whose specific version of UNIX should be pushed forward. I was a participant in all this, and in hindsight, we took our eyes off the prize: the desktop. Microsoft, waiting in the wings, was happy to walk off with the spoils as the other guys fought their internecine battles.

Comments welcome at rajeevs@rediff.co.in