By Paul DeGroot [bio]
Posted: Aug. 5, 2002

Open-source software backers have been attracting increasing attention by suggesting that governments and other public agencies should adopt open-source software. As the owner of the world’s biggest commercial software franchise and a major supplier to governments worldwide, Microsoft has taken the other side of this debate. Public spats over open source’s suitability for government use are unlikely to have any immediate impact on Microsoft, but they highlight the long-term challenges the company faces when selling to governments—in particular, Microsoft will have to respond to changes in government procurement policies, address public pressure to move away from proprietary standards and technologies, and manage its own political visibility.

Open-Source Buzz

Governments are a market that no major technology vendor can ignore: the U.S. government is expected to spend nearly US$50 billion a year on information technology (including both hardware and software) in 2002, and worldwide government expenditures on technology exceed US$100 billion. Less influenced by overall economic factors than the private sector, government spending can actually increase during an economic slowdown, making it an important refuge for vendors.

During 2001 and 2002, open-source advocates petitioned governments to make open-source software a requirement for government purchases. The requests for "openness" may come from a relatively small community, but they have particular resonance among governments, as they piggyback on popular trends such as calls for greater government transparency and greater use of technology for the public good. Given Microsoft's status as the largest commercial software vendor in the world, many of these advocates' arguments have an anti-Microsoft tinge as well.

Although the movement has had little success persuading the U.S. government to adopt pro-open-source policies, it has had several public successes in other regions of the world, including the following:

• The German parliament has officially endorsed Linux for server applications (while endorsing Microsoft operating systems and applications for desktop use).
• Belgium and Peru have considered mandating government purchases of open-source software.
• The Taiwanese government is funding research into an open-source operating system alternative that it claims will eliminate payment of more than US$250 million in royalties to Microsoft each year.
• Barely three weeks after signing a memorandum of understanding under which Microsoft donated US$750 million to help develop the software industry in China, the Chinese government announced a major project to "end the monopoly of foreign office software" in the country by developing open-source equivalents to Windows 98 and Office.

Establishing New Rules for Government

Despite these highly publicized bits of progress, open-source advocacy is likely to have little immediate impact on Microsoft's success in selling to governments: modern governments depend heavily on Microsoft’s desktop operating systems and applications to get their work done, and creating rules that disadvantage Microsoft would cripple the governments that sponsor those rules.

Nevertheless, governments are reexamining their technology requirements and purchasing rules. Although the open-source community might like to take credit for this trend, there are other reasons for it as well. In particular, governments are recognizing that the Internet and other recent technology advances offer significant communications and cost-savings benefits, and that ineffective sharing of information can have disastrous consequences, as the inability of U.S. federal agencies to stop known terrorists from entering the country before Sept. 11 demonstrated.

As a result of all these forces, some governments are polishing existing practices and creating new policies to reflect changing digital realities.

Government purchasing. Governments are increasingly working through government-to-business (G2B) marketplaces where businesses can quickly locate government contracts and submit bids electronically. Such marketplaces not only reduce the cost of publishing and distributing bid information (the Canadian government actually makes money from companies that pay to access its outsourced MERX procurement site, which posts about 1,500 new contracts each day), but also improve vendor access to bid information and opportunities. All proposal documents and the details of winning bids are often available for public viewing over the Internet. One consequence is that special discounts quickly become public knowledge, and government purchasers are increasingly able to compare prices and vendor experiences.

Preference for open standards. Open standards are politically less controversial than proprietary technologies owned by a single vendor. In addition, because of the vast number of agencies in a typical government and the need for these agencies to share common data, vendors need to support open data formats and protocols. Even if governments must continue to accept some proprietary technologies for reasons of cost or technical superiority, some may demand access to source code so that they can ensure that proprietary software does not violate public policy (e.g., by failing to protect citizens’ privacy).

Code sharing. Unlike private companies, governments keep most of their processes in public view, and are likely to view custom code that they develop or buy as part of the "intellectual commons"—paid for by taxpayers and available for use on their behalf at any time. The European Commission is considering a proposal for a "pool" of open-source software that might be developed by private contractors for one government (or co-developed for several governments) and would be available to any European government that wanted to use it. Such measures strike at the heart of one of the more profitable software consulting practices (sometimes called "reusable intellectual property"): proprietary methodologies or software components that can be sold repeatedly to different clients.

How Microsoft Fits

Microsoft is reasonably well positioned to function in an environment in which governments require more openness and compatibility with standards. The company is taking advantage of new G2B marketplaces, participates in most of the open standards bodies, and is not averse to sharing custom or source code with partners and governments.

Participating in Open Bidding

Instead of bidding for government business directly, Microsoft works largely through partners, who bid on government contracts with proposals that include Microsoft software. Microsoft acts as a kind of broker, aggressively signing up and training partners to bid on and execute government contracts, and monitoring publication of new government tenders or requests for proposals, which are then fed to partners capable of bidding on them.

This approach has significant merits: with multiple bidders in the race, Microsoft has more than one chance to win government work—in some cases all of the bidders might be proposing to use Microsoft software, which means Microsoft cannot lose.

Dependence on partners also serves the company well outside the United States, where bidding against local firms is fraught with political dangers. By enlisting those firms as partners, Microsoft becomes their ally and mentor; governments can award contracts to local firms, thus building up local expertise and providing jobs for their citizens, while still using Microsoft products for their IT solutions.

More Open to Open Standards

Although some of its data formats—notably, Office file formats—remain proprietary, Microsoft participates in most of the major standards bodies, cooperating with competitors and public bodies on the development of new, open technical standards.

Microsoft was one of the first major vendors to embrace the XML data format, continues to promote it aggressively, and gives it a central role in most of its new server products. (See " XML to Glue Applications Together" on page 8 of the Mar. 2002 Update.) The company is an active participant in or works with the World Wide Web Consortium (W3C), ECMA (formerly the European Computer Manufacturers Association), the Organization for the Advancement of Structured Information Standards (OASIS), and other similar bodies.

Also, Microsoft has for several years made source code available to governments that require it, and has developed a program for offering wider government access to source code under its Shared Source Initiative, launched in 2001.

Open Solutions

Although Microsoft and its own Microsoft Consulting Services (MCS) frequently develop custom code that is not placed in the public domain for reuse by others, Microsoft has also released millions of lines of practical source code for royalty-free use through the Microsoft Developer Network, TechNet, resource kits, and other channels.

More recently, the company has begun publishing—again, on a royalty-free basis—deployment scripts, configuration wizards, and other documentation to assist systems integrators in developing polished solutions from Microsoft software components. These guides, often derived from real-world engagements by MCS or Microsoft partners, reduce the cost and time involved in deploying Microsoft software. (For more information, see " Solution Guidance Expanded".)

Issues Remain

The debate between open-source advocates and commercial software vendors is likely to continue for decades, as public bodies balance the populist appeal of open-source solutions against the commercial realities of the software business and lobbying efforts by the software industry.

Neither side is likely to score a complete victory, but for Microsoft to have continued success in selling to governments over the next few years, it must address the following issues:

A level playing field for procurement. The open-source community has been extremely vocal in trying to persuade governments to purchase only open-source software. In response, Microsoft will continue to lobby and remain politically active, with the help of its partners, to argue for the benefits of commercial software to governments. (See " Strategist Criticizes Open Source" on page 28 of the June 2001 Update.)

The need to be "open." Although standards bodies can be excruciatingly slow in approving new technical standards, commercial vendors such as Microsoft must continue to be involved in such efforts, and must also pursue agreements with industry competitors to develop and propagate de facto standards (such as the company's work with IBM on Web services protocols). Microsoft will need to resist the temptation to go it alone on new technologies—the days when the company could release proprietary technologies in such quantity that they would overwhelm nascent public standards are probably over.

Finally, the company will have to be careful when it adds proprietary extensions to open standards, as it has done with the Kerberos authentication protocol. Such efforts provide fodder for open-source advocates to convince governments that Microsoft has bad intentions, even if Microsoft sees them as necessary for a private company in a competitive business. Microsoft must ensure that it can clearly explain and adequately justify these proprietary extensions—especially to governments that are investigating the company for antitrust violations—or it risks losing government sales.

Security weaknesses. One of the most significant opportunities in the government sector is the demand for software that can be secured against outside attacks or data interception and that will perform reliably in moments of crisis. Microsoft’s highly public struggle to create reliable, secure products puts the company at a disadvantage in this area. Even the U.S. government is looking for alternatives: the National Security Agency recently released a special version of Linux, called Security Enhanced Linux, for possible use by government agencies that need to provide higher levels of security than are now available. One Microsoft technology that might have application in this area is Palladium, a proposed operating system enhancement that could effectively lock data and applications on a PC from outside intrusion. Palladium is not expected to appear commercially, however, until 2005.

Political visibility. Government-sponsored antitrust actions in the United States and Europe have tarnished the company’s image and made it vulnerable to charges that it will overwhelm smaller companies and stifle innovation. Although delays and appeals might give the company more time to work around such problems, or make the original charges moot, they also keep Microsoft on the defensive and create unfavorable headlines. Politically sensitive government officials may find it advantageous to attack the company’s practices and provide additional support for open-source solutions.

Resources

For information about Microsoft’s programs for governments, see www.microsoft.com/government.

Microsoft’s portal for partners who want to work with governments is msgovconnections.com. This site has useful links to a marketing guide for pursuing government business, and to events and training opportunities, including presentations on how Microsoft works with government and how Microsoft solutions can be tailored for government use.

European Union activities related to procurement, technology standards, and open-source software can be followed at europa.eu.int/ISPO/ida/ . The report on pooling open-source software is at europa.eu.int/ISPO/ida/export/files/en/1116.pdf.