New models of software pricing and distribution are becoming increasingly popular. “Open source” software relies on voluntary programmers to build applications that can be distributed freely. Ad supported software includes web-based applications that are free as well, but they generate revenue through advertisements. Also on the increase: “on-demand” software where customers rent software applications when they need them and pay only for what they use.
All of these models pose unique threats to Microsoft, although that is hardly news to CEO Steve Ballmer, who clearly sees the challenges ahead. At a Wharton Leadership Lecture this past December, Ballmer noted that the two biggest competitive threats to Microsoft are open source software and advertising supported applications. “Right now, the emblem of the first one is Linux and the emblem of the second one is Google. But it’s not the companies, it’s the phenomena” that present the greatest challenge to Microsoft, said Ballmer.