In reading through Microsoft’s annual report, I’m struck by how far the company has come in appreciating the threat that open source brings to Redmond. I’m also shocked by just how ill-informed the company continues to be with regard to open source as a business strategy. Steve Ballmer has revealed this before in his quips about “Open source won’t pay our bills,” but here Microsoft has managed to enshrine its ignorance in a public document:

Our business model has been based upon customers paying a fee to license software that we develop and distribute. Under this license-based software model, software developers bear the costs of converting original ideas into software products through investments in research and development, offsetting these costs with the revenue received from the distribution of their products. Certain “open source” software business models challenge our license-based software model….

A number of commercial firms compete with us using an open source business model by modifying and then distributing open source software to end users at nominal cost and earning revenue on complementary services and products. These firms don’t bear the full costs of research and development for the software. Some of these firms might build upon Microsoft ideas that we provide to them free or at low royalties in connection with our interoperability initiatives. To the extent open source software gains increasing market acceptance, our sales, revenue and operating margins might decline.

Yes to that last point, but no to Microsoft’s earlier point about R&D costs (as well as its throwaway line that open source is building on Microsoft’s ideas. This is undoubtedly true in some areas, but it also goes the other way, which Microsoft fails to acknowledge). Unless Microsoft is reserving that commentary exclusively for Red Hat and Novell and others like them that build on a community-developed platform like Linux, Microsoft’s comments couldn’t stray any farther from the mark.

For most open-source companies, we spend significantly more of our money on research and development than Microsoft and its proprietary ilk do. That’s one of the primary selling points for open source: We spend less on sales and marketing and more on developing our products.

Microsoft’s response to competition from open source?

… Source:The Open Road

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This entry was posted on Sunday, August 3rd, 2008 at 1:18 pm and is filed under Business and Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.