I have made an important conceptual mistake in my recent coverage of Microsoft (MSFT) and its Windows 8 launch.
Like many of you, I've been looking at it in comparison with Apple (AAPL). Apple supports multiple operating systems. It supports Mac OSX Lion on the desktop. It supports iOS on its tablets and phones.
Microsoft is going at things a different way. Windows 8 is designed to work in conjunction with its Azure cloud, on a desktop and (through the Metro interface) on media tablets and phones as well.
One operating system to rule them all, I wrote. How silly! How trite! How impossible.
But it's not impossible at all.
It's Linux, whose biggest distributor is Red Hat (RHT).
Linux has been more than competitive with Windows for a decade, thanks in part to the Apache Web server. It is more than competitive on tablets and phones, thanks to Google's Android, now being forked by Amazon and Baidu. It gets laughed at, and perhaps rightly so, because it's week on the desktop. “This is the year of desktop Linux,” is a running gag.
Still, it works in all these environments. And thanks to virtualization it's a major player in the cloud. You can run Windows programs in the cloud, under Linux, through a hypervisor. You can also run Linux programs under Windows in the same way.
By delivering a program that runs on the Azure cloud, on servers, on the desktop, and on tablets or phones, Microsoft isn't targeting Apple so much as it is Linux. It is hoping that its unified strategy will let it expand its desktop dominance into these other directions, with help from its superior developer tools.
I think this is the best bet Microsoft has on the board. But investors need to understand that it's a risky bet. It's very difficult for one operating system to work in any environment – look at desktop Linux. And it's very tough to beat an open source process in the marketplace.
Microsoft, for instance, wants to both host clouds and run an operating cloud stack. In the cloud operations department it faces Amazon.com (NASDAQ:AMZN) and Rackspace (RAX). In the cloud stack arena it faces VMware (VMW) and RedHat, among others.
Its attempts to build an ecosystem around its Metro system will find competition from Amazon (again) but also from Apple and Google. Apple created the ecosystem model, and is using it to chip away at Microsoft's desktop market share.
Still, even if Microsoft fails to gain significant market share across the board, there are huge opportunities being opened by these new markets that it can now take advantage of. I've been down on the company so long this looks like up to me.
Disclosure: I am long GOOG.