Microsoft Warns Of Open-Source Pricing Threat

Microsoft warned in a recent Securities and Exchange Commission filing that it may be forced to drop the price of its software because of the threat of open-source software.

"The popularization of the open-source movement continues to pose a significant challenge to the company's 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 development of software products," Microsoft said in a 10-Q report for the quarter ending Jan. 31.

Microsoft noted that it has built its business on the commercial software model, where developers are paid for their software. But under open source, developers work in communities, "and the resulting software and the intellectual property contained therein is licensed to end users at little or no cost," Microsoft said in the filing.

"To the extent the open-source model gains increasing market acceptance, sales of the company's products may decline, the company may have to reduce the prices it charges for its products, and revenues and operating margins may consequently decline," it added.

Companies routinely warn in their SEC filings about events that could hurt financial performance; many of those events never materialize. One person posting to a Slashdot discussion said Microsoft has included warnings about Linux and open source in official filings for several years.

One thing not noted in the Microsoft filing is that free software is not free in the financial sense of the word. The software itself is free, but it requires service and support. Indeed, the total cost of ownership of Windows is lower than Linux in many applications, according to an IDC report late last year commissioned by Microsoft.