Linux's Specter Hangs Over Microsoft Conference

The open-source operating system isn't on the official agenda at the vendor's conference for government leaders, but it's likely on the minds of both company officials and attendees
SEATTLE (AP) -- It doesn't top the official agenda, but as government leaders converge at Microsoft Corp. for an annual conference, one of the company's major competitors--Linux--is likely to be on executives' minds.

Microsoft had representatives from 61 countries Monday and Tuesday at its Redmond, Wash., campus for its annual Government Leaders Summit.

But with the disclosure that Microsoft has been using a fund to steeply discount its software to government agencies that are considering competitors' cheaper products, the Linux phenomenon will doubtlessly come up.

Also Monday, Microsoft announced a new deal to license Unix technology from SCO Group. The move is seen by Microsoft detractors as a bid by the software giant to undermine the Linux operating system, a Unix offshoot, as a competitor.

Last week, SCO sent letters to Linux customers claiming the software is an "unauthorized derivative" of its property.

At the conference, Microsoft will tout the message that there's more to software than just its upfront costs. However, it's clear the company will accept huge discounts to ensure it does not lose the lucrative government and educational market.

"Where there are competitive options, Microsoft is often willing to go to the mat to make sure they get a deal," said Michael Gartenberg, research director for Jupiter Research.

The summit will focus on such topics as technology and its role in driving economic development, the delivery of government services over the Internet and Microsoft's vision for where technology is heading, said Brad Smith, Microsoft senior vice president and general counsel.

But the summit comes amid a struggling global economy and the increasing popularity of the free Linux open-source software--in which big-name vendors like IBM are creating and selling lower-cost software.

In recent months, government agencies from Germany to France to Peru have adopted or are considering Linux-based software as a cheaper alternative to Microsoft products.

To counter that, Microsoft established in July the Education and Government Incentive program, which allows the company to steeply discount software for government and academic agencies, Smith said.

The threat to Microsoft is clear from an E-mail last year by Orlando Ayala, then Microsoft's worldwide sales chief.

Ayala wrote, "Under NO circumstances lose against Linux before ensuring we have used this program actively and in a smart way," Smith told The Associated Press. The company declined to share the full E-mail.

The program is geared mostly for developing countries, where agencies may be less able to afford Microsoft software, Smith said.

He brushed aside concerns that Microsoft may be using its massive cash hoard--more than $40 billion--to discount products unlawfully or in other ways that violate European Union laws. The European Commission has been investigating Microsoft for possible antitrust violations.

"The notion of having programs so that we can be competitive (on) prices is really part and parcel of this and every industry on the planet," Smith said. "We certainly want to offer a better-value proposition ... (and) we do it in a responsible and lawful way."

The fund is a way for Microsoft to smooth over some anger by key customers who saw hefty price increases when the company changed its licensing terms, said Laura DiDio, senior analyst with the Yankee Group research firm.

The company also said on Monday that it was licensing Unix technology from SCO Group for use in software products for computer servers, as many customers are moving away from Unix-based programs to either Microsoft or Linux-based software.

SCO, which owns key components of the Unix operating system, filed a $1 billion lawsuit against IBM, saying the company has taken bits of Unix code and transferred them to Linux. IBM says the lawsuit is unfounded.

Although the Unix licensing won't directly affect Microsoft's competition with Linux, Gartenberg noted that "Microsoft, without doing all that much, is able to generate some FUD (fear, uncertainty and doubt) at the Linux crowd."

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