It’s Been a Tough Week for Microsoft

jzemlin's picture

It has been a tough week for Microsoft. This morning the E.U. announced it is imposing a 1.3 billion dollar fine on the company because Microsoft had “charged unreasonable prices for access to interface documentation for work group servers” and that it had abused its dominant position under Article 82 of the EC Treaty. That is not something any company wants to hear the week after announcing, “new interoperability principles and actions will increase openness of key products” and on the day of Windows Server 2008’s “Heroes Happen Here” launch event.

The Good, The Bad, and The Ugly

Microsoft’s publication of 30,000 pages of protocol information and API’s previously only available under paid licensing terms and a broadly stated commitment to engage productively with the open source community is remarkable in and of itself. What a long way we have come from Steve Ballmer’s hyperbolic allegations of evil and deadly disease! But to determine what it will actually mean to the Linux platform and the wider open source community requires very careful examination. Because many of the details of their broadly worded principles are still to be announced, it has led to lots of speculation in the Linux world on Microsoft’s true intentions. In the spirit of being” open,” let’s look at the motivations from this announcement from three different angles.

The good: that Microsoft is truly joining the rest of the world in promoting open interfaces, standards, and supporting interoperability because it is in their business interest to do so.

The bad: that Microsoft is suffering from the classic innovator’s dilemma. It is torn between protecting its monopoly cash cow and the need to open up to the rest of the world, even if it means that cow might give less milk in the short run.

Finally the ugly: Microsoft has a long history of doing the bare minimum to placate regulators and the courts (see today’s fine). By choosing patent licensing terms for their protocols that are obviously incompatible with open source licensing practices can lead one to believe that Microsoft may be creating an appearance of openness to an unsophisticated market of public opinion knowing that interoperability with open source will not be achieved. My fear is that the pronouncements will not be honored in spirit and the words may actually be intended to make Microsoft appear more open than it is.

Let’s start with the good.
It wasn’t long ago that Steve Ballmer called Linux “a cancer.” Since then Linux has moved on to become a dominant platform in mainstream computing, powering key internet applications such as Google, Amazon, Face book, and others. It has also consistently captured 30 percent market share in enterprise server computing and dominates high end super computing with over 80% market share. Linux is also threatening Windows Mobile with efforts like Google’s Android platform and the LIMO platform from Motorola, Samsung, NEC, and others. And finally it is threatening even Microsoft’s desktop monopoly with low cost PC’s from Asus, Dell, HP, Lenovo, and more. Microsoft’s announcement can therefore be interpreted as an acknowledgment that the world is moving towards “open.” Open platforms, open standards, and open innovation where users of technology refine and innovate in ways that the original creators of software had never foreseen. Alternative platforms and programming API’s are clearly making Windows less relevant and forcing Microsoft to play catch up. Google docs threatens office, Adobe’s Air and Google’s Widgets both have a huge head start on Silver light; what was once the crown jewels of Microsoft’s competitive strength, the Windows API and the massive developer community around it is now under increasing threat from open alternatives.

Microsoft itself admits this with their statements from Ray Ozzie, “Customers need all their vendors, including and especially Microsoft, to deliver software and services that are flexible enough such that any developer can use their open interfaces and data to effectively integrate applications or to compose entirely new solutions. By increasing the openness of our products, we will provide developers additional opportunity to innovate and deliver value for customers.” Microsoft has invoked the stigma of an anti-competitive slow moving dinosaur losing hundreds of employees to innovative companies such as Google, Red Hat, and others. Microsoft has clearly learned from these systemic problems and is opening up to the world for its own good.

Now the bad: Microsoft is torn between doing right and clinging to the past. They were late to the Internet, which Bill Gates openly acknowledged in two books he wrote. They missed Google and are now trying to buy their way into that market for over $46 Billion dollars in cash and stock (enough money to put a dent even in Microsoft’s massive cash reserves.) The last thing they want to do is miss the march towards open source and open standards. Here’s the catch: internally they are addicted to the crack cocaine of $12 billion dollars a year in monopoly profits. This profits comes from a Windows and Office platform that is becoming increasingly a commodity and increasingly less relevant with the dawn of web applications. For years Microsoft’s highest-level executives have been hounded to stop the war with the open source community. This dilemma is best illustrated by the exchange between Brad Smith and Steve Ballmer at the press conference last week announcing Microsoft’s open source principles:

BRAD SMITH: With respect to other (commercial) distributors, and users, the clear message is that patent licenses will be freely available.
STEVE BALLMER: Patents will be, not freely, will be available.
BRAD SMITH: Readily available.
STEVE BALLMER: Readily available for the right fee.

We have heard this before. In 2003 Microsoft announced the “availability of Open and Royalty-Free License For Office 2003 XML Reference Schema. [Bringing] a new Level of Transparency, Interoperability, Document Portability And Ease of Communication” In 2005 Microsoft announced it was “offering new ways for developers to distribute software code that implements its technology together with open source code” in response to European regulators. In 2006 Microsoft announced a new “interoperability alliance” to “foster interoperability across IT systems.” Let’s hope that this is not yet another marketing measure but rather a substantive change created from within Microsoft rather than forced from the outside.

Microsoft has an opportunity to demonstrate their commitment to work with open source which is based on a collaborative environment that is highly interdependent. To be successful requires that a company work hard over an extended period to earn the trust of the community. Microsoft has a lot of work to do. And the public tug of war for the soul of the company as demonstrated by the Brad Smith and Steve Ballmer exchange is making it hard for Microsoft build trust in the community that they mean what they say. It will be prudent of Microsoft to walk their talk, which as I stated above is in their own best interest to do so.

The ugly: Microsft’s announcement is, at its heart, incompatible with the fundamental principles of open source development. Although they have opened up their protocols and formats and have agreed that they won’t bring patent infringement claims against open source developers who implement them - something that it is extremely hard to imagine they would ever stoop so low as to actually do anyway - they still insist on imposing royalty-bearing patent licensing obligations on the use of those protocols and formats. They know very well that this is fundamentally incompatible with open source licensing terms. Their failure to acknowledge or explain this fundamental flaw in their announcement calls into serious question their commitment to the principles they have announced.

Do I think Microsoft is deliberately setting traps for open source developers? I do not. I think it shows that Microsoft needs to better understand the relationship between what they see as “non-commercial developers” and providers of open source service and solutions in a commercial setting. They would be wise to start understanding that the open development community may have started as non-commercial hobbyists, but has long since grown beyond that definition and has developed sophisticated processes, frameworks and organizations to balance the interplay between commercial and non-commercial worlds. This lack of understanding has produced the grim result for Microsoft which has become the first company in fifty years of EU competition policy that the Commission has had to fine for failure to comply with an antitrust decision. Does this help build trust with the open source community or with customers who are demanding a greater degree of transparency?

The hope:
There is no doubt that the world is moving towards a model where open systems and open source software co-exists with proprietary software. Microsoft has finally been forced to acknowledge this. Now is the time for Microsoft to begin to engage the development and user community outside of its immediate sphere of influence. This is in the best interest of Microsoft, the IT industry, and users of technology. Dialogue should be engaged on the following points:

1. Use of open protocols and standards on terms that allow for the greatest number of market participants and are compatible with open source licensing and development practice.
2. An acknowledgment that patent reform in software is necessary and an agreement not to waste industry resources on pointless legal action. To their credit, Microsoft has joined in every major patent reform initiative. Microsoft is a sponsor of Peer to Patent and testified for patent reform legislation. The company has been hurt more by patent suits than any one. Microsoft has paid out over more than four billion dollars in patent settlements has been subject to nearly a billion dollars in regulatory fines, and now is time for them to stop banging the shoe on the table and realize that nuclear détente is in everyone’s interest.
3. Embrace open standards such as Open Document Format rather then support a difficult to implement and competing standard for document exchange such as OOXML.

Technology users have simple goals: they want products that interoperate well together in an increasingly interconnected world, they want a choice of competitive vendors rather than relying on a single source, and they want innovation in technology to meet their ever increasing technology needs. Microsoft is clearly one of the most capable companies on earth that can compete on these terms. Their announcements as of late give users of technology hope that rather than to continue to leverage their market dominance and slow technical innovation created by millions of individuals around the world that they would like to compete in the marketplace based on the quality of their products.