Microsoft's Biggest Enemy Now: Apple, Linux or Itself?

Referring to a pie chart at the meeting that gauges threats to Windows, Ballmer said that Windows itself, both licensed and pirated, were the top two threats to Microsoft in the client OS space, followed by Linux, then Apple.

Ballmer quipped: "Windows license, number one market share. Number two market share goes to Windows pirated, or unlicensed. That's a competitor that's tough to beat; they've got a good price and a heck of a product, but we're working on it."

Ballmer followed with a carefully-worded mockery of Apple's "point or more" market share growth over the past year. "A point of market share on a number that's about 300 million [number of PCs shipped worldwide in 2008] is interesting. It's an interesting amount of market share, while not necessarily being as dramatic as people would think."

"Number two market share goes to Windows pirated, or unlicensed. That's a competitor that's tough to beat; they've got a good price and a heck of a product."

Steve Ballmer, Microsoft CEO, quipping about how Microsoft has to compete with itself.

Though Linux's 0.88 percent OS market share hardly qualifies as a threat, Linux does compete with Microsoft in more areas than Apple and it is much cheaper. "Cheap" takes on an appealing sound in an economic recession.

Clearly, Apple has been hit by the economic downturn in the past two months. It has seen dips in Mac sales and market share, and even announced a small round of layoffs today.

But is Ballmer truly wary of Linux? Is he just trying to disparage Apple as usual? It's hard to tell. Industry experts interviewed for this story say the folks at Redmond will continue to face threats on all sides and even from within.

Linux Attacks on More Fronts

Matt Rosoff, an analyst with independent research firm Directions on Microsoft, mostly agrees with Ballmer about the threat pecking order, saying that Linux trumps Apple as a threat, but that Microsoft's biggest rival is itself.

"Macintosh computers are a threat in precisely one market — upscale consumer PCs, a small part of the overall PC market," Rosoff says.

"Linux is a bigger threat because it competes in more areas such as server OSs, embedded systems and increasingly on client PCs with the rise of low-cost netbooks," he says.