updated 10/19/2003 12:55:07 PM ET 2003-10-19T16:55:07

With more than $32 billion in sales last year, Microsoft Corp. doesn’t usually worry about losing one customer. But this one may be different. In a memo sent last month, Massachusetts Administration and Finance Secretary Eric Kriss instructed the state’s chief technology officer to adopt a policy of “open standards, open source” for all future spending on information technology.

THE DIRECTIVE likely wouldn’t completely cut out Microsoft from the state’s $80 million technology budget.

But it may have been the clearest example yet of a state government taking sides — against Redmond, Wash.-based Microsoft — in the most important struggle in the software industry.

(Microsoft is a partner in MSNBC.)

Microsoft’s software generally uses “proprietary” code that the company closely guards. Its biggest threat is from “open source” operating systems led by Linux, whose core components are public, and which users are free to pass around and customize as they like.

Governments are a huge market, accounting for about 10 percent of global information technology spending, according to research firm IDC. Federal, state and local governments in the United States spent $34 billion last year on huge systems to track everything from tax collection to fishing licenses.

“I think they’re correct to be concerned,” said Ted Schadler, principal analyst at Forrester Research, adding that government switchovers could doubly hurt Microsoft by persuading big corporate customers that, if huge public bureaucracies can adopt platforms like Linux, so can large companies.

SUPPORT FOR LINUX

Governments have also been among the most aggressive early adapters of Linux. IBM, a major Linux backer, says it has installed or is installing Linux for 175 public sector customers.

“The momentum is unstoppable at this point,” said Scott Handy, vice president of Linux strategy and market development at IBM. “The leading indicator as far as a customer set has been government.”

Many believe open source will prove cheaper to deploy and operate, and that it may be more secure; because the codes are public, flaws may be discovered more quickly. And some foreign governments seem eager not to be dependent on an American company.

Federal agencies in France, China and Germany, as well as the city government of Munich, have opted for Linux. Britain, Brazil and Russia are also exploring it.

“You scratch any one of these initiatives and you can’t escape that it’s Microsoft they’re trying to displace,” Schadler said.

Microsoft’s risk of losing the public sector market altogether is small, at least for now.

The company’s products are just too essential, and many open source alternatives too ineffective for many of the kinds of big database jobs governments require. Kriss said the state would still use Microsoft products when cost-effective open-source alternatives aren’t available.

Microsoft says it knows it won’t win every contract, but it opposes any type of mandate preventing proprietary software from even being considered. It says that’s bad for technology companies and bad for taxpayers, who may get stuck paying for inferior, more expensive products.

“We do treat this issue very seriously here,” said David Kaeffer, Microsoft’s director of technology policy.

GROWING TREND

Microsoft has fought open-source mandates with limited success. Proposals similar to Massachusetts’, including ones in Oregon and Texas, have been shot down after complaints from Microsoft and other technology companies whose products could be shut out. Microsoft also aggressively lobbied the Defense Department to cut its use of open source software, according to a Washington Post report last year.

The company has plenty of reason to worry.

The Microsoft-led industry group Initiative for Software Choice has tracked 70 different open-source preference proposals in 24 countries. And despite Microsoft’s lobbying, a Pentagon report concluded that open source was often cheaper and more secure, and that its use, if anything, should expand.

Gerry Wethington, Missouri’s chief information officer and president of the National Association of State Chief Information Officers, said many of his group’s members are pushing hard to bring open standards to their states.

Microsoft countered with an initiative in July that steeply discounts software for government users. It also agreed to make its secret source code available to some governments in order to assuage security concerns.

Microsoft insists that it supports “open standards,” which is often associated with “open source” but can also be a broader term meaning any way of making technology work together.

Although some analysts say open-source products may offer stronger security and greater reliability, the argument that they make it easier for systems to talk to each other falls apart if many of those systems are already Microsoft.

“Politically, there are only pros, but in terms of government employee productivity there are quite a few cons,” said Schadler, the Forrester researcher.

© 2003 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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