Open source 'pressuring Microsoft pricing'

Competition from Linux and other open-source software appears to be helping enterprises negotiate a better deal with Microsoft, despite the company's 'no discounts' policy

Enterprises are able to negotiate increasingly better licensing deals with Microsoft as the company fights off competition from Linux and other open-source software, according to software vendors and industry analysts.

Charles Andrews, director of public sector at Sun, told ZDNet UK that more competition has already caused prices to fall, which means government departments have more money to spend on services rather than software licences. "We are engaged with the government on a whole range of projects and the market and street price is changing as a result of competition. From a government and citizen point of view, it means they are not being ripped off," he said.

When Microsoft decided to extend support for Windows 98 in January, analysts said it was because the company was worried that both enterprise and public sector customers would consider migrating to Linux.

The UK government is paying increasing attention to the issue of Microsoft's effective desktop software monopoly, with the Office of Fair Trading having launched an investigation into government procurement practices earlier this month. The move was designed to stop taxpayers from being "ripped off" by Microsoft, according to Sun.

The OFT's analysis will be published in July and is expected to identify how procurement practices affect competition, create barriers to entry for new firms and encourage innovation. Spending on hardware and software will play a significant role in the study, especially as a number of national and local government departments, including the NHS, have been evaluating Windows alternatives, such as Sun's Linux-based Java Desktop.

James Governor, principal analyst at RedMonk, expects Microsoft to "take a hit" when it comes to profit margins and said this is a good time to negotiate a better deal. "With licensing issues, there is no way Microsoft is going to have its own way at the moment," he said. "Microsoft is and will respond to user pressure around software pricing. If users have felt in the past that they can't negotiate, now is the time because there is some real competition in desktops and that can only be good for customers."

Gary Barnett, research director at Ovum, agreed that Microsoft is finding it increasingly difficult to maintain its profit margins. "Microsoft has always publicly said it does not negotiate or do special deals on price, but the truth is that Microsoft is going to be obliged to do an increasing number of them. Linux has a crucial role in giving people choice and also [in] curbing the incredible margins Microsoft has been making out of Office," he said.

Microsoft's licensing marketing manager, Mark Buckley, denied that there are any discounts being offered, but conceded that in some cases the company provides different types of licences to "prove the value of its software". He told ZDNet UK: "We don't give discounts. We display our value. It is not a discount, it is an offer to prove our viability to market," he said. Buckley argued that licences are only a small proportion of the total cost of software and after re-training, changing hardware and altering applications, companies are better off sticking with what they have.

Eric Woods, government practice director at research firm Ovum, told ZDNet UK that it is unlikely that Microsoft will gain anything from the OFT investigation because any change would mean it loses some of its dominant in the market: "If you are in the position where you are the main beneficiary of the current system then clearly you are not that keen or have much interest in a broad range of questions that may change that status quo," he said. "It's hard to see how Microsoft might gain from this and it might provide strength to the anti-Microsoft camp."