Microsoft offers fund to block Linux

By RICHARD WOOD

In the midst of negotiating a bulk-buying deal with 160 New Zealand Government departments and agencies for its software, Microsoft has weakened its bargaining position.

The New York Times last week revealed an internal Microsoft campaign to discount software to Government departments, down to nothing if necessary, if a deal looked doomed. It especially warned not to let open-source operating system Linux win.

The New York Times said a Microsoft email to senior managers globally last July 16 authorised them to dip into a special fund to discount software if they were about to lose a Government deal, even if that meant giving the software away.

They were told "under NO circumstances lose against Linux".

The news comes as an eight-strong negotiating group representing Government departments and agencies is hammering out the "G2003" agreement covering pricing for Microsoft software. It will replace an earlier agreement in use since 2000. In June last year the deal was estimated to cover $20 million of software licences - assuming pricing would be below $250 a seat for desktop software including Office, XP operating system and Outlook email involving 50,000 desktops.

Key negotiator, Department of Defence chief technical officer Warwick Sullivan, said the issue would be discussed at a negotiators' team meeting in the next week and it was not too late for the information to be useful to the team.

"Nothing is too late until it is all signed sealed and delivered."

However, Sullivan said the campaign appeared to apply only to Governments that had stated they were looking carefully at using open-source software.

The New Zealand Government has adopted a largely hands-off approach towards alternatives to Microsoft, although this month the State Services Commission encouraged departments to look at open-source when considering software options.

Sullivan pointed out that departments could try to negotiate their own deals with Microsoft if they preferred.

Rumours persist that a major Government department is seriously considering a shift to Linux and Microsoft Office competitor StarOffice on its desktops.

Microsoft enterprise and partner group manager Terry Allen said it would be "inappropriate" for Microsoft to make any comment on or speculate about the agreement at this stage of the negotiations.

Allen said the deal should be completed in the next three or four months.

However Sullivan said he hoped it would be completed "very shortly".

Department of Internal Affairs information and facilities manager Alison Fleming said the negotiating group believed it was getting a good price and negotiations had also taken into account a Microsoft price drop two weeks ago.

The New York Times article also considered the legality of Microsoft's discounting approach in some jurisdictions in the light of anti-trust concerns about abuse of monopoly power.

The discounting was defended by Microsoft on the basis that rivals were using similar tactics, and that Sun Microsystems had been giving StarOffice away to Governments and schools. Open-source competitors Linux and Open Office are also free by their very nature.

Chris Hegan, local advocate of competing open-source software and chief executive of systems integrator Asterisk, said the exposure of Microsoft's strategy was an opportunity for the negotiating team.

"The eleventh-and-a-half hour is the perfect time. You look to negotiate with another party that is off balance".

The fortunes of the open-source movement have been up and down in the past week.

New reports from researchers Gartner and D. H. Brown and Associates show Linux gathering strength.

But Unix manufacturer SCO Group contends Linux contains SCO intellectual property and has begun legal action against one of the biggest Linux supporters, IBM. It has also sent letters to 1500 of the world's largest firms warning them of its claims and has stopped selling Linux itself.