That's how it seemed to me, anyway, when Microsoft declared in its 10-K filing that it faces "intense competition" from open source. No one should be shocked, but it would be more striking if they saw open source as more of an opportunity and not a danger. And in more than the usual, obvious ways.

Most of what's in the 10-K filing is for the sake of people who are more mavens of money than machines. They read things like this, and of course their eyebrows go up:

Open source software vendors are devoting considerable efforts to developing software that mimics the features and functionality of our products, in some cases on the basis of technical specifications for Microsoft technologies that we make available at little or no cost. In response to competition, we are developing versions of our products with basic functionality that are sold at lower prices than the standard versions. These competitive pressures may result in decreased sales volumes, price reductions, and/or increased operating costs, such as for marketing and sales incentives, resulting in lower revenue, gross margins, and operating income.

Nobody who reads these pages regularly is going to be surprised by such statements. But people who've invested in Microsoft in the long term may be, because they remember a time when the big Windows competition was NetWare or OS/2 (or even MS-DOS, to some degree) -- in other words, other commercial software products. Now the pressure comes from an entirely new kind of software, one where the software itself isn't even the center of whatever business model is used to create it.

I can speak for myself: I gave Microsoft a little bit less of my money the last time I bought Office 2007. I didn't even buy the whole suite. I just bought Word and Outlook, and left the rest to OpenOffice. My own use of Excel was limited, and was more than covered by what OpenOffice Calc can do. For me, Word and Outlook were worth the cash, but the rest of it I could take or leave. If Microsoft takes hints like that to create new versions of stuff in the Office suite -- or better, less costly repackagings of the same thing -- that compel me to come back, great. And if they don't, I've still lost very little. It's a win/win situation for customers.

What I hope happens is that Microsoft also sees it as a win/win. If they get a customer back, great! If not, they get a learning experience they wouldn't get otherwise -- and that they didn't get even from commercial competitors like WordPerfect. I also hope it means that if I go back to Microsoft for something, the OpenOffice folks will try to learn from that and see if there's something they also could be doing. (Their version of the ribbon UI, for instance, could make me a full-blown believer if they took the trouble to implement the things that Microsoft didn't bother to do the first time.)

I hold out hope against Microsoft releasing any of its major products as open source offerings, though -- I don't think that's going to happen for a variety of reasons, not the least of which being the provenance of the IP within any one product (see the opening of Java for more on that note). I'd sooner expect a "closed-core with open add-ons" strategy, which would in essence mimick Microsoft's own platform strategy: keep Windows proprietary, but make it possible to run open source there so well that most people won't mind. If they did do something completely open, my guess is that it would be a project with zero attachments to anything else currently going on -- Windows included.

So what I'd like to see most come out of Microsoft admitting open source is stiff competition is better software all around, no matter who makes it or how. Not just from them, but everyone.

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