May 15, 2003

UPDATE 2-Microsoft aims discounts at Linux

Thu May 15, 2003 12:59 PM ET
(Recasts, adds EU, lawyer, Microsoft comment)

By Lucas van Grinsven and Siobhan Kennedy

AMSTERDAM/NEW YORK, May 15 (Reuters) - Microsoft MSFT.O is offering large discounts on its products and has dedicated funds for a battle against the licence-free Linux operating system, measures that may run afoul of European competition rules.

But the company declined to comment a newspaper report that its previous sales chief had sent a email a year ago authorising executives to offer steep discounts as a way of preventing customers from buying Linux.

The discounts cash-rich Microsoft is said to be offering may put further pressure on the world's largest software maker which is under investigation by European market regulators for abusing its market dominance.

Microsoft said it used two funds as part of its Linux strategy. One aimed at governments and the educational sector and a second was aimed at enabling its sales force to undercut competitors who sell Linux software. "The primary objective (of the government and education program) is to make technology available to customers at low prices. We believe that this programme makes good business sense," said Microsoft spokesman Jim Desler in Seattle.

"There are (also) business investment funds. We use them in the case of a major competitor -- in this case it was IBM IBM.N -- dropping prices for services consulting and Microsoft responding with a program to compete," he said.

The news that Microsoft has set up funds to compete against Linux first emerged in the International Herald Tribune newspaper which said it had obtained internal Microsoft emails.

"Under NO circumstances lose against Linux," Orlando Ayala, chief sales executive, was quoted saying by the newspaper.

Microsoft is the operating software on more than 90 percent of desktop computers around the world, while it is pushing into the market for more powerful and expensive computers. A range of Microsoft rivals are promoting Linux as a cheap alternative to Microsoft's Windows.


"If it's true the discounts would constitute an abuse. It would a be an infringement of case law involving article 82: no discounting by a dominant company that excludes competition," said Thomas Vinje, a competition law attorney at Morrison & Foerster in Brussels who is involved in cases against Microsoft.

Microsoft said it believed its programmes complied with all existing laws and regulations.

A spokeswoman for European Union competition commissioner Mario Monti declined comment.

Monti said in June 2001 after fining French tyre maker Michelin MICP.PA for keeping competitors out of the French tyre market that "dominant companies must be careful not to engage in practices that exclude other players from the market".

Governments and organisations in many countries are interested to use Linux on desktop computers, which is already a successful rival to Unix and Windows in server computers, used to power Web sites and corporate software.

Linux software runs 15 percent of all servers sold in Western Europe in 2002, compared with 56 percent of servers running on Windows, according to research group IDC.


But just as Microsoft changed the computer industry 25 years ago when it started selling operating software as a separate product, Linux is changing the game again, analysts said.

"Linux software is owned by the software community. For Microsoft that's a very hard fight. If it says it doesn't want to lose against Linux, that's a statement against the community," said analyst Martin Hingley at IDC.

Linux is being distributed by hundreds of companies, which are not allowed to charge for the core software, but which do charge for modifications, services and maintenance. (Additional reporting by Tom Miles in Brussels)

Full Story @

Posted by Muddy at May 15, 2003 01:53 PM | TrackBack

Post a comment

Remember personal info?