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Details of Linux-in-Munich Deal Revealed
An anonymous reader writes "USA Today is running a piece about the lengths which Microsoft went to in order not to lose the government of Munich's account to a Linux-based proposal from SuSE. Interesting to see how these types of contracts are structured, and just what Microsoft is willing to give up to prevent losing to Linux."
On the brink of losing a pivotal account to an ascending rival, Microsoft last March dispatched CEO Steve Ballmer to the rescue.
The German city of Munich was balking at a $36.6 million proposal from Microsoft to upgrade 14,000 desktop PCs to the latest versions of Windows and Office. Instead, Munich -- Germany's third-largest city and a technology hub for Central Europe -- was leaning toward a switch to Linux, the upstart computer operating system whose open-source code is continually improved by volunteer programmers worldwide.
A Linux victory in Munich would be a stunning blow. So Ballmer visited Mayor Christian Ude to assure him Microsoft would do what it takes to keep the city's business. Documents obtained by USA TODAY show Microsoft subsequently lowered its pricing to $31.9 million and then to $23.7 million -- an overall 35% price cut. The discounts were for naught.
On May 28, the city council approved a more expensive proposal -- $35.7 million -- from German Linux distributor SuSE and IBM, a big Linux backer.
The vote wasn't just another win for Linux, as it continues to gobble chunks of the computer server software market -- a market Microsoft does not dominate. Munich is about to become the largest tech user to deploy Linux for everyday use on desktop PCs, the wellspring of Microsoft's profits.
USA TODAY obtained government and corporate documents that provide a rare insider's look at Microsoft's efforts to keep from losing a key customer. Among other things, it:
* Agreed to let Munich go as long as six years, instead of the more normal three or four, without another expensive upgrade, a concession that runs against its bread-and-butter software upgrade strategy.
* Offered to let the city buy only Microsoft Word for some PCs and strip off other applications. Such unbundling cuts against Microsoft's practice of selling PCs loaded with software.
* Offered millions of dollars worth of training and support services free.
The result in Munich shows that the world's largest software company is again under attack from a powerful outside force. But this time the encroacher isn't government antitrust lawyers or a rival tech giant.
Instead, Microsoft is defending itself against the open-source-code movement. In the past two years, dozens of government agencies and schools across Asia, Europe, Australia and the Americas, along with financial institutions and moviemakers, have helped establish open-source software on beefy computer servers that display Web pages and crunch numbers. Now they have begun embracing open-source software running on ordinary desktop computers.
''What's striking about the Munich deal is the use of Linux on the desktop,'' says Paul DeGroot, tech industry analyst at research firm Directions on Microsoft. ''It's a threat to Microsoft's real source of strength, the desktop, where it has no competition and is used to winning all sorts of battles.''
Should its desktop software sales stagnate or, worse, decline, Microsoft's profit could plummet, and it could find itself with a diminished ability to bankroll promising, but costly, new ventures, such as tablet PCs, smart phones and online video games.
Anchored by the Linux operating system, open-source software is the antithesis of Microsoft's proprietary codes. It includes a growing number of freely distributed applications, such as OpenOffice, a Microsoft Office clone, and Mozilla, a Web browser that can perform basic workplace tasks. Created and honed by volunteer programmers worldwide, open-source alternatives are generally cheaper to acquire and easier to customize, and cost nothing to upgrade.
Though Microsoft underbid IBM and SuSE by $11.9 million in Munich, city officials were concerned about the unpredictable long-run cost of Microsoft upgrades, says Munich council member Christine Strobl, who championed the switch to Linux. And the more Microsoft discounted, the more it underscored the notion that as a sole supplier, Microso
Clearly, free market is at work here. Apparently the DoJ case was BS, since MS has real competiton.
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