The timing of the price cuts is interesting, however, following news that Microsoft is set to lose to Linux and open-source software a large Windows desktop contract it has with the German government. SuSE Linux AG, IBM and the city of Munich, the third largest in Germany, are expected to announce on Wednesday that Munich has chosen Linux and the free OpenOffice.org productivity suite for its more than 15,000 desktop systems, replacing Microsoft Windows NT.This threat includes "recent efforts by proponents of the open source model to convince governments worldwide to mandate the use of open source software in their purchase and deployment of software products. "To the extent the open source model gains increasing market acceptance, sales of the companys products may decline, the company may have to reduce the prices it charges for its products, and revenues and operating margins may consequently decline," the filing said.
Microsoft also recently said that it may be forced to lower its software prices in the future as a result of the growth of open source. In its February 10-Q quarterly filing with the Securities and Exchange Commission, Microsoft said that the popularization of the open-source movement continues to pose a significant challenge to its business model.