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Microsoft To Counter Open Source With 'Basic' Software Line

The software vendor plans to develop versions of its products with "basic functionality" to be sold at lower prices than its standard offerings.

In response to rising competition from open source software that's community developed and often given away for free, Microsoft said it plans to develop versions of its products with "basic functionality" to be sold at lower prices than its standard offerings.

Once the sole domain of self-styled computer geeks, open source software, such as Linux, is now used in products offered by a growing number of large tech companies, such as Google, IBM, and Motorola. Those companies believe they can earn more revenue by selling add-ons and services around the software than they could by charging for the software itself.

Microsoft says it's a growing threat to its commercial software business.

"Open source software vendors are devoting considerable efforts to developing software that mimics the features and functionality of our products," Microsoft said in its annual report, filed last week with the Securities and Exchange Commission.

Indeed, IBM last year introduced Lotus Symphony, a free desktop suite that provides much of what's found in Microsoft's pricey Office package. IBM says that hundreds of thousands of users have downloaded Lotus Symphony, which is built on the open source package, since its debut.

Open source software also is encroaching on Microsoft's Windows Mobile business, which provides an operating system for cell phones. The LiMo Foundation, which comprises several major mobile device manufacturers and offers an open source OS for phones, earlier this week announced 11 new members and said that Motorola and NEC have introduced new LiMo-based models.

Earlier this year, Symbian -- which owns 65% of the mobile OS market -- adopted the open source model following a buyout by Nokia.

Microsoft said it plans to meet the open source challenge head-on. "In response to competition, we are developing versions of our products with basic functionality that are sold at lower prices than the standard version," the company said in its annual report.

To date, however, Microsoft's low-cost efforts are still relatively expensive, particularly when compared with software that's free. For instance, the student and home versions of Microsoft Office 2007, which a company spokesperson cited Monday as an example of Microsoft's strategy to counter open source products, are both priced at more than $100. Microsoft's Equipt software subscription service, also cited by the spokesperson, sells for $69 per year.

Still, Microsoft believes its low-cost products are sufficiently inexpensive to keep the majority of its customers away from the no-cost competition. "Microsoft has developed lower-priced offerings tailored to customer demand and will continue to do so in the future," the spokesperson said.

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