Microsoft Filing Advises of Price Cuts

Microsoft's admission that open-source software could force the company to lower prices has fanned speculation that the Windows developer may be forced to become more open.

Microsoft Corp.s admission that open-source software could cut into its revenues and force the company to lower prices has fanned speculation that the Windows developer may be forced to become more open.

In an assessment of the growing open-source threat to its business model in a 10-Q quarterly filing with the Securities and Exchange Commission Jan. 31, Microsoft said the popularity of open-source software continued to challenge its business model.

The threat includes "recent efforts ... to convince governments worldwide to mandate the use of open-source software," the filing said.

The threat to Microsofts government business is real and continues to grow. Last week, the South African government released a report that recommended the use of open-source software for its agencies. That followed similar moves by government agencies in Great Britain, France, Germany, China, Australia and Brazil.

Microsoft customers such as Burt Janz, president of CCS New England Inc., in Nashua, N.H., which provides computing solutions for Windows, Unix, Linux, OS/2 and Mac OS, said Microsofts filing indicates it is feeling the heat from open source.

"Governments want to be in charge of their own systems, rather than take orders from a company that provides some of their software. Small companies, with fewer resources and less staff, are increasingly gaining the ability to bid for those contracts on a much more even footing," Janz said.

Paul Harmon, a consultant with Cutter Consortium, in Arlington, Mass., agreed, saying Linux usage could save governments millions of dollars and provide users with superior security and code that could be closely examined and tailored to their needs. "When you consider the value of the computing markets involved, you can see why Microsoft has mounted a now-or-never effort to stop open source," Harmon said.

Peter Houston, Microsofts senior director of Windows server strategies, in Redmond, Wash., disagreed with these assessments. "[10-Qs are] the place where Microsoft highlights potential risks to its investors," Houston said. "It does not mean we believe this will necessarily happen or that we dont have opportunities to avoid these risks.

"If we were to start seeing greater adoption rates of open-source software, lowering our prices would certainly be one of the alternatives we would have to consider. But there is no evidence at this point that shows this is the time to do so," Houston said.

CCS Janz said Microsofts determination to remain in unprofitable markets like its Xbox and MSN has put it in the position of "having to keep the price high on its core products to fund its noncore products.

"Microsoft is in the strange position of telling the SEC that, since competitor products are less expensive, it can no longer compete on price alone," Janz said.

"[Its] wishful thinking to believe that we are being put in a position where we need to change the way we do business," said Microsofts Houston. "We have no intention of making our products more open source or having them run on open-source platforms."

Microsofts Services for Unix product already makes Windows more interoperable with Linux and Unix, and that will continue, Houston said. "What we have done with our protocol licensing programs shows a lot of openness, and we will continue to make the things people want access to available on fair, reasonable and open terms. Thats the route well follow," he said.

A U.S. Air Force programmer who requested anonymity said the military will be increasingly pushed toward open technologies, since these provide for a more secure, stable and hardened system. Windows has proved it cant meet these needs, he said, adding that he dealt with network issues caused by Microsoft software on a weekly basis. Using Linux and OpenBSD would bring huge benefits in security and remote access, he said.

"Secure Shell allows terminal access with high security," the programmer said. "There is something to be said for a system into which you can log in from across the globe, edit a file, run a script and keep the system going without having to be there in person to click widgets in a GUI."

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