Microsoft Fights On; Loses Munich

Exchange 2003 eases migration; software vendor counters with free services, price cuts.

Microsoft Corp.s battle to counter the growth of open-source software is costing the company millions of dollars, but Linux is still beating the software company in lucrative Windows deployment deals.

The Redmond, Wash., companys latest licensing update, announced last week, will give customers who sign up for Licensing 6.0 and Software Assurance free support, services and home-usage rights for Office. Microsoft last week also slashed Office XP retail pricing by 15 percent and the price of other Office-family stand-alone applications by up to 30 percent.

Nevertheless, Microsoft last week was dealt a blow when the City Council of Munich, Germanys third-largest city, voted to spend some $35 million to migrate its 14,000 desktop and laptop computers from Windows to Linux and OpenOffice.org.

The loss of the contract was more bitter than others, since Microsoft pulled out all the stops to keep Munichs business, including a visit from CEO Steve Ballmer. Ballmer, who was on a ski vacation in Switzerland, was interrupted to visit Munichs mayor to discuss the matter, city officials said last week.

The loss hits Microsoft where it lives—on the desktop—rather than on the server side, where Linux has gained the most ground.

One of Munichs councilors, Boris Schwartz, said the move broke Microsofts "monopolylike position," a sentiment that was shared by Richard Seibt, CEO of SuSE Linux AG, which helped Munich evaluate the move along with IBM.

"This is a momentous decision because we believe this truly marks a watershed moment for Linux," said Seibt, in Nuremberg. "The city clearly sees Linux not just as cost savings over costly, proprietary software but also as the best tool for the job." Walter Raizner, country general manager for IBM Germany, in Stuttgart, said that with Munichs decision, one thing is clear: It is open season for open-source computing. "Linux represents freedom and flexibility," Raizner said.

Microsoft spokesman Hans-Juergen Croissant said the company intends to continue to work closely with the administration of the city to explore additional programs and offerings.

Microsoft officials maintain that the latest licensing enhancements and price-cutting moves are "customer driven" and have nothing to do with Linux and open source. But many of its customers are skeptical.

"Open source may well accomplish something the government could not in its antitrust action against the company: make Microsoft compete fairly," said a systems support official at a Canadian energy utility and Microsoft customer, who requested anonymity. "It appears that active competition may force Microsoft to actually charge a fee that is proportionate to the value their products provide."

Bill Landefeld, Microsofts vice president of worldwide licensing, told eWEEK that while the licensing enhancements will come at a high cost to Microsoft, the company is committed to improving its offerings. "Under our Open Value program, SMB [small- and midsize-business] customers can currently make annual payments, but we would like to get that to a point where customers can pay on a quarterly or monthly basis," Landefeld said. "We hope that these enhancements to the program, which are effective on Sept. 1, will continue to drive the uptake of Software Assurance in the SMB base."

Some SMB users are not impressed by the latest moves. Bob Duerr, president of Integrated E-com, in Naperville, Ill., said Microsoft simply doesnt understand the small and midsize market, where buyers tend to use a limited set of Office features and have little need for training. "The [Office XP] 15 percent retail discount is also valueless, as they generally only purchase Office as a bundle with a new PC," Duerr said.