Open Source a Threat, Microsoft Admits

In a regular filing with the Securities and Exchange Commission (SEC), Microsoft warned that open source software (OSS) solutions such as Linux pose a threat to the company's long-term success. Microsoft's public statements about Linux have evolved over the years, moving from dismissive to cooperative, but this filing is the first time the company has admitted the seriousness of the problems it will face if open-source solutions become popular enough to affect sales.

"The popularization of the open source movement continues to pose a significant challenge to the company's business model," Microsoft wrote in the filing, which also notes "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." If OSS continues to gain traction, Microsoft says that it will have to lower prices to compete, an action that will significantly affect the company's revenues and operating margins.

Microsoft enjoys a market share of more than 90 percent for both desktop OSs and office-productivity software, and its server software continues to control 40 to 60 percent of key markets. But the company is concerned that OSS will begin cutting into price-sensitive markets, such as the educational and government markets, leading to broader Linux adoption in businesses and homes. Several Linux vendors are now racing to develop more refined solutions to meet the needs of the wider desktop market.

Microsoft downplayed the significance of the filing, however. "It just seemed like an appropriate place to list [the open-source threat], along with other uncertainties," a company spokesperson said. "Microsoft had been publicly acknowledging those concerns for quite a while."