Open Source: A 'Growing Challenge' to Microsoft

Open source software topped the list of business "risk factors" outlined in Microsoft's annual 10-K report to the U.S. Securities and Exchange Commission.

Open source software topped the list of business "risk factors" outlined in Microsoft's annual 10-K report to the U.S. Securities and Exchange Commission, published last week. The emphasis seems a little surprising. For instance, global open source Linux use currently trails at 0.82 percent, while Microsoft Windows dominates the operating system market at 91 percent, according to stats from Net Applications' Market Share.

Microsoft's 10-K report depicts an unlevel playing field. Competitors distribute open source software at "nominal cost," making money off services instead of the software. Moreover, these open source software companies, unlike Microsoft, "do not have to bear the full costs of research and development for the software," the report alleges.

Microsoft lately has made some peace offerings to the open source world and even joined the open source Apache Software Foundation, but the report depicts open source software mostly as a potential competitive threat.

"In recent years, certain 'open source' software business models have evolved into a growing challenge to our license-based software model," the reports states.

The report also suggests that Microsoft's recent publication of protocol documentation for its core products could have an overall damaging effect on the company.

"The availability of protocol licenses may enable competitors to develop software products that better mimic the functionality of Microsoft's own products which could result in a reduction in sales of our products."

Microsoft had initially described its plans to make the protocols publicly available as a major software interoperability policy change. That shift, first announced in February, has led to the release of thousands of pages of protocol documentation to potential competitors. For the most part, Microsoft was compelled to open its protocols as a result of government antitrust legal actions.

Could Microsoft's new openness actually hurt the company? Microsoft may have a point in suggesting so.

For instance, London-based Alfresco Software late last month released "the first open source fully compatible SharePoint repository," called Alfresco Labs Beta 3. This enterprise content management system serves as an "open source alternative to Microsoft SharePoint," according to Alfresco's press release.

Alfresco points to regulatory action as paving the way for the product's release: "Microsoft released the SharePoint protocol as part of its compliance with the European Commissions' decision issued on March 24, 2004," the press release explains.

Another risk factor for Microsoft is that governments themselves may turn toward adopting open source solutions.

"…The popularization of the open source software model continues to pose a significant challenge to our business model, including continuing efforts by proponents of open source software to convince governments worldwide to mandate the use of open source software in their purchase and deployment of software products," the report states.

If open source software gains market share, Microsoft might lose revenues or have to lower its prices, the report adds. Some other risk factors on the horizon for Microsoft, according to the report, include protecting its intellectual property and source code, future lawsuits, ensuring software security, research and development costs, and more.

Microsoft's annual 10-K filing can be accessed here.

About the Author

Kurt Mackie is senior news producer for the 1105 Enterprise Computing Group.


  • Microsoft Invests $1 Billion in Next-Level AI Research

    Research outfit OpenAI and Microsoft have inked a $1 billion deal around artificial general intelligence (AGI), considered the holy grail of AI research.

  • Microsoft Streamlining Office 365 App Activations

    The Office 365 app installation experience should get a little easier for end users starting as early as next month.

  • The 2019 Microsoft Product Roadmap

    From the next major update to Windows 10 to the next generation of HoloLens, here's what's on tap from Microsoft this year.

  • 2019 Microsoft Conference Calendar: For Partners, IT Pros and Developers

    Here's your guide to all the IT training sessions, partner meet-ups and annual Microsoft conferences you won't want to miss this year.