I don't necessarily want to disagree with what you've said. No marketplace seems to move as quickly and as ruthlessly as does the IT sector. On the other hand, you're making the assumption that just because free alternatives exist, people will choose to use them. This may not be the case, either now, or in the foreseeable future. I'll give you a few examples.
If you fall ill with some life-threatening illness, you can check into the local emergency room, and expect a bill of tens of thousands of dollars, or you can go online, research some folk medicines, find a recipe for an herbal remedy, go outside, pick the herbs from your garden, bring them in, and simmer them on your stovetop, all for free. Which option would you choose?
If you want to build your dream house, you can call up the local contractors, have them bid on the project, and pay one of them to build it for you, or, you can spend every weekend from now until the end of eternity hauling wood from Home Depot to your construction site so that you can build it, for free, for yourself.
People bitch and moan about Microsoft products, but the simple fact of the matter is that those products are used BECAUSE THEY ADD VALUE. Gnome & KDE can't hold a candle to the W2K/XP interfaces. There isn't a spreadsheet in the world with the ease of use of Excel. Outlook [despite its past security problems] is the best scheduler in the business. Period.
People are willing to pay extra for quality. The challenge for Microsoft [and Sun, and IBM, and HPQ, and all the old-timers] is to make sure that the quality of their products justifies the pricetags. I think they call it building a better mousetrap...
Slick,
I am not going to argue, value add people will pay for. The question, and more to the point issue, I am raising is that the value add that MS will give, will continue to deminish. Right now there in my oppinion or only a few true open source projects that are doing it right and well, those center around 2 major products, APACHE/JAKARTA which are phenomenal, and Unix derivatives (FreeBSD, LINUX etc..) Now certainly there are more opensource products out there databases, EJB containers etc etc..
The point I am making is not that MS has a value add, the point is, what value add will they be giving in the future? Products like Word, and the rest of Office, really are not adding new features that have any impact or that are driving most people to upgrade. So you have relatively static products, that are not driving user upgrades. When you have that type of situation, the value add becomes less and less over time.
Once you no longer have product driving use through advancement you must fall back on compatibility (file format).. right now MS has this, the question though is if the product is stable/static can it continue to expect to stay the defacto? Remember, there once was a product called Word Perfect and it was the defacto standard... MS leveraged its OS monopoly with a concerted effort against WordPerfect to change that. Don't think MS is immune from that happening, just because they have the OS.
So, you have software mainly being supported now, not by its own features, but by the OS tie (IE upgrade of Office happens not from a need for new features, but because new OS is out...)... And most OS sales are from hardware upgrade not out of need either (because OS is not advancing huge features driving upgrade, and machines are replaced on lease every 2-3 years or less)... So you have this whole thing essentially dependent on the hardware cycle upgrade, not on their own individual merits. Now since machines are faster and faster, and quite frankly are far more powerful than most business users will ever tap, even at the low end these days, will that cycle continue ad infinum?
If it does, MS is fine, because it can continue to make high margins on new computers being sold, however if it doesn't and MS needs to sell upgrades on their own.... it starts to come apart. Think about it, why do I as a business need to buy the new Office XXXX or windows YYYY? what I have works fine.. so I don't.... there is no compelling reason to upgrade. If there is no real compelling reason to upgrade, then any competitor, opensource or otherwise is going to gain ground during such times.... So your value add becomes less over time, not greater. Right now and quite frankly for average user, a good while MS has had no compelling upgrade argument, and continues to rely more and more on the upgrade cycle.
MS's knows this, they know they have a problem, if they didn't they wouldn't be trying so hard to find a market for their goods outside of their core, but thusfar have been unable to, because unlike the OS/Office world, they don't have that monopoly to leverage.. So far nothing outside of that core area has been successful. And their core is not going away today, but it is not going to be what it has been in the past.
M$ makes 78% profit margin on office products with 80% + marketshare.
M$ loses money in markets where it does not have monopoly powers thus must perpetuate monopoly to remain profitable
M$ was found liable for using anticompetitive tactics that inhibited competitors from entering in the ludicrous marketplace
Bottom line, consumers have less choice, less innovation, and higher prices
If you expect me to believe that any one company can create a product that fullfills everyones needs all the time at the lowest possible price without any competition from the goodness of their hearts, I will have to point you to the fact that M$ appearently looses in every market they have genuine competition in. I am afraid the boys in Redmond seemingly cannot fullfill your promise of the best functionality for the lowest price in every arena.
This is a blow to us who believe that M$ uses their OS monopoly to force their inferior products on end users; Even with their 90% + OS marketshare they still cannot force their other offerings profitable.