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Open Source: A 'Growing Challenge' to Microsoft

8/8/2008

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Open source software topped the list of business "risk factors" outlined in Microsoft's annual 10-K report to the U.S. Securities and Exchange Commission, published last week. The emphasis seems a little surprising. For instance, global open source Linux use currently trails at 0.82 percent, while Microsoft Windows dominates the operating system market at 91 percent, according to stats from Net Applications' Market Share.

Microsoft's 10-K report depicts an unlevel playing field. Competitors distribute open source software at "nominal cost," making money off services instead of the software. Moreover, these open source software companies, unlike Microsoft, "do not have to bear the full costs of research and development for the software," the report alleges.

Microsoft lately has made some peace offerings to the open source world and even joined the open source Apache Software Foundation, but the report depicts open source software mostly as a potential competitive threat.

"In recent years, certain 'open source' software business models have evolved into a growing challenge to our license-based software model," the reports states.

The report also suggests that Microsoft's recent publication of protocol documentation for its core products could have an overall damaging effect on the company.

"The availability of protocol licenses may enable competitors to develop software products that better mimic the functionality of Microsoft's own products which could result in a reduction in sales of our products."

Microsoft had initially described its plans to make the protocols publicly available as a major software interoperability policy change. That shift, first announced in February, has led to the release of thousands of pages of protocol documentation to potential competitors. For the most part, Microsoft was compelled to open its protocols as a result of government antitrust legal actions.



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