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The Empire Strikes Back

In the software industry, those are fighting words. Until now, Microsoft has had little reason to get stirred up about Linux’s gains, which have come largely in the business server market and largely at the expense of Unix and Sun Microsystems’ Solaris operating system. But the markets for desktop operating systems and office software – which together bring the software giant more than 60 percent of its revenues – are Microsoft’s to lose, and both sides know it. “The outfit that runs 94 percent of the [desktop] space believes correctly that it can’t live with us,” says Raymond. “It’s us or them, and we want to make sure it’s us.”

In public statements, Microsoft officials still downplay the open-source threat to Windows and Office. “Quite frankly, we’re not seeing evidence that Linux or open source is making significant traction in the corporate desktop market,” says Alan Yates, Microsoft’s senior director of business strategy.

The company’s actions, however, bespeak a much higher level of concern: it has begun slashing prices and even mimicking the open-source movement’s own tactics, opening up portions of its closely guarded code to outside inspection.

In Thailand, for example, where Linux PCs from Thai firm Laser Computer are the top-selling brand, Microsoft last year created stripped-down, Thai-language versions of Windows XP Home Edition and Office XP and offered them as a bundle for about $37 – about one-sixteenth of their combined U.S. retail price. The company is trying similar markdowns in Malaysia, another Linux stronghold, and is considering offering cut-rate software packages in other developing countries.

While there’s no talk of Thai-style price reductions for Windows software in the United States, WalMart.com does offer a PC with Windows XP Home Edition for $298, and Microsoft has launched a major publicity campaign asserting that the cost of retraining and support means switching to Linux and open-source applications is actually more expensive than sticking with Windows, especially for large organizations. Microsoft’s recent moves add up to an acknowledgement that the company must now compete – and perhaps even coexist – with the open-source movement. “There is no one correct way to create software,” acknowledges Jason Matusow, who directs Microsoft’s Shared Source Initiative, a two-year-old program under which more than a million software developers and corporate customers can view – but not copy or redistribute – the code behind Windows and 16 other programs.

Matusow says Microsoft’s limited form of open source helps customers integrate their own in-house software with Windows and brings Microsoft developers more direct feedback about bugs and needed features, but without giving away the company’s core asset: its intellectual property. He believes that the proprietary and open-source software worlds can exist in symbiosis, with the open-source community supplying innovation that commercial software companies can later turn into marketable products. “We will vigorously compete with products that compete with us,” says Matusow. “But it would be an absolutely unfair statement to say that we’d like to see [open source] go away.”

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