By Corporate Watch UK
Completed February 2004

2. Products/projects

Products/projects

Microsoft spent $4.7 billion on R&D during 2003.³¹ Its expectation to dominate the market for Interactive Television failed. Liberate, OpenTV, and TiVo won out using mostly Linux based products. Microsoft was unable to deliver an acceptable product, on time, and at competitive cost. Microsoft's SmartPhone (Stinger) initiative to dominate the high end mobile phone market is on life support now that T-Mobile is said to be canceling or scaling back the program and Sendo is suing them for unfair business practices, misappropriation of intellectual property and just about everything else³².
Microsoft is maintaining secrecy on the next version of Windows (dubbed Longhorn, set for release in 2005) amid claims that it's not just an upgrade. What it is is Microsoft's way of forcing customers to upgrade their software by not being compatible existing software, hardware or methods³³. Microsoft acknowledge that they're scared: “If this system is not perceived as offering significant new functionality or value to prospective purchasers, our revenues and operating margins could be adversely affected³⁴.” Microsoft's "next generation PC", code named "Athens", ties PC design tightly to Microsoft's Windows initiatives and DRM (Digital Rights Management) plans, leaving no options for differentiation among PC vendors. Athens is a "Microsoft Branded" PC in every detail except the label on the front³⁵. A significant portion of the company's revenue growth over the next five years will come from Microsoft's .NET architecture.³⁶ It is part of its long term goal of “Software as a Service.” Software won't be loaded onto a computer at all, it will run "as a service" from Microsoft .NET servers. Data will also reside on Microsoft .NET servers somewhere out on the Internet. For access, you will have to be authenticated by a Microsoft Passport server. Bill Gates was recently asked if Microsoft software might eventually be available only for rent through .NET, and replied "I believe in the long run things will be architected that way³⁷."
Microsoft is now going after the world's most popular search engine, Google, since it emerged that the company planned a stock market flotation in early 2004. Microsoft executives have approached Google about a range of options, including a takeover by the software company, at meetings. Although Microsoft's advances were reportedly rebuffed, it could still pursue Google once it is a public company³⁸.

Must destroy open source

The biggest threat to Microsoft comes from open source software. “To the extent the Open Source model gains increasing market acceptance, sales of our products may decline, we may have to reduce the prices we charge for our products, and revenues and operating margins may consequently decline³⁹. IBM's endorsement of Linux has accelerated its acceptance as an alternative to both traditional Unix and Windows server operating systems.⁴⁰ ”
The main reason for open source software's popularity is that it is free. In addition, the source code which makes the program run is available for anyone to examine and alter. This means that free software applications often have hundreds of authors all around the world making bug fixes and improvements occur more rapidly⁴¹.
Microsoft, of course, sees it somewhat differently: “The company believes that there are significant problems with the Open Source Model, the principal drawback being that no single entity is responsible for the Open Source software, and thus users have no recourse if a product does not work properly or at all. Further, without the market incentives associated with the commercial software development model (where customers agree to pay a fee to license software developed and distributed by Microsoft), the Company believes that the vigorous innovation and growth of the software industry over the last 25 years would not have occurred.”⁴²

Martin Taylor, the company's general manager of platform strategy, admitted the company's initial approach to the threat to be somewhat childish: "We kind of defaulted [to emotion] because we could not think about Linux in the right way." Emotions expressed by Microsoft include calling open source software a “cancer”, “un-American” and “bankrupt”⁴³. Essential reading in understanding the true measure of Microsoft's attitude toward open source can be found in the leaked Halloween I⁴⁴ and II⁴⁵ documents.

Major PC manufacturers have always been under threat by Microsoft to eliminate products or configurations Redmond does not approve of - to "assure a Uniform Windows Experience". Dell's announcement that Linux would be available on many of it's desktop PCs resulted in them being immediately withdrawn without explanation⁴⁶.
Microsoft's current push is to have complete control over hardware design and availability. The practice of issuing joint Intel/ Microsoft PC design specifications came to an end with the PC 2001 issue. Microsoft alone now specifies PC design, leaving Intel as only a manufacturer. By controlling the hardware platform they can assure that open source products do not have access to important hardware features.

Despite Microsoft's notion of fair play, “the popularization of the Open Source model continues to pose a significant challenge to our business model, including 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.”
One such proponent is the Computer & Communications Industry Association, a trade group representing Microsoft rivals, including Sun Microsystems and Oracle, who are planning to form a lobby group (the Open Source and Industry Alliance) to urge governments to use the Linux operating system⁴⁷. China had already been convinced but following the government's development of its own unique version of Linux (Red Flag Linux) and Office (RedOffice), Microsoft agreed to reveal all of the Windows source code, making China among the first to benefit from its program to allay the security fears of governments⁴⁸.

These kindly concessions don't seem to be working, principally because paying software licensing fees to companies like Microsoft is, as head of Brazil's National Information Technology Institute says, “unsustainable economically”. Under Sergio Amadeu's guidance, President Lula da Silva's administration is encouraging all sectors of government to move toward open-source programs. Amadeu is also talking to election officials about using open-source software in the country's more than 400,000 electronic voting machines, about 20% of which run on a Windows variant.

Microsoft is worried and is lobbying (see Lobbying) hard to prevent the policy from becoming law. The company got between six and ten percent of its $318 million in Brazilian revenues from the government for the fiscal year that ended in June. They are worried that, although other developing countries such as India are farther along than Brazil in promoting use of open-source systems, Brazil is poised to become a role model for other Latin American countries⁴⁹.

As it does in other developing countries including Peru, where the company has faced an open-source challenge, Microsoft donates software to Brazilian non-profit organizations and schools.

In the West, the Australian Green party recently signalled they are willing to lend their political muscle to Democrat moves to introduce open source preference legislation “where practicable”. Greens hold key parliamentary seats in several states where the Democrats are introducing the Bills, and are politically sympathetic to laws that challenge the power of big business. Somewhat ironically, a written statement issued through Microsoft's public relations firm said open source preference legislation limited choice. Lobbyists from the Washington-based Initiative for Software Choice have described the SA legislation as "hidden protectionism" that discriminated against US companies⁵⁰. Funny then that even the US Department of Defense has begun to use Sun's StarOffice, the open source variant on Microsoft Office⁵¹.

In December 2003, the National Health Service, Britain's biggest employer, declared that it had ordered a trial of a Linux-based system from Sun Microsystems as part of a £2.3 billion computer modernisation plan. 'If this solution were to prove effective we could save the NHS and the taxpayer many millions of pounds while at the same time using rich and innovative software technology,' said Richard Granger, NHS IT director. Charles Andrews, Sun Microsystem's public sector head, said licence cost savings would come to tens of millions of pounds directly. 'And we won't force people to upgrade computers and technology on a 2-3 year cycle either. Customers can upgrade when they need to⁵².'

Head Office One Microsoft Way, Redmond, Washington 98052-6399 USA Tel: (425) 882-8080 Fax: (425) 936-7329 For all other office locations (including UK) see: WWW.MICROSOFT.COM/WORLDWIDE/

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