Microsoft bids to head off EU anti-trust case

Tech giant seeks to regain ground lost to Linux, writes Jamie Smyth, Technology Reporter

Mr Jean-Philippe Courtois didn't enjoy much of a "honeymoon period" when he became head of Microsoft's European operations earlier this year.

His first seven months as the software giant's senior representative in the region have been characterised by a series of crises that threaten to undermine its dominance in the marketplace.

A spate of security breaches in Microsoft software this summer cost business billions of euro in lost productivity and some red faces at Microsoft. But this was nothing compared to the decision of some European public administrations - such as the city of Munich - to switch exclusively to using "open source" software.

Linux, the popular operating system based on open source, is often available free of charge to users because of its unique development model, whereby people collaborate all over the world to write the software code. Firms or organisations that install the software usually pay systems integrators service fees to support it.

So Microsoft now has a competitor in the marketplace at a time when much of its focus is on an ongoing anti-trust case led by the European Commission (EC).

Microsoft is clearly alarmed by the threat, and Mr Courtois is on a mission to persuade governments that open source is not the answer to their IT problems.

"We see it [open source\] as more of a challenge for all commercial software companies and there are a number of great software firms in Ireland," says Mr Courtois. "I think we are talking about software exports worth about €12 billion in two years."

Mr Courtois criticises the peculiar licensing system of open source called GPM, which by its nature makes all the work that developers do on a piece of code freely available to others who use it in new software applications.

"We are saying there needs to be a limit in the way you apply this principle if you believe in the health of the software economy... this has been based on IP and based on the fact that entrepreneurs and developers could create a company selling software and IP and repeating that."

Mr Courtois is lobbying European governments - which are increasingly becoming major investors in IT - to follow a principle of neutrality when making purchases.

"When we see people being dogmatic and saying that it has to be open source and you cannot bid for a project with commercial software then it is a big danger for industry," he says.

But the spate of high-profile security breaches that affected Microsoft software during the summer did little to help Microsoft's cause with consumers or governments.

And there remains a perception that Linux is potentially a safer and more transparent platform as its source code is freely available to developers for debugging exercises.

"This is why our company has decided to change the way it interacts with the development community. We decided to put in place a shared source code licensing programme to enable universities to access the code."

Microsoft has also recently made its software code available to 15 national governments for security assessments, he says.

It is also making progress on a trustworthy computing initiative to make its software more secure from viruses, worms and hackers. Last week it launched a new security programme that will enable customers to link their systems with Microsoft to enable auto-update of patches and better security management, says Mr Courtois, who admits security is now high on the agenda of Europe's politicians.

Yet the issue that is likely to define Mr Courtois' tenure as Microsoft's European chief is the company's ongoing anti-trust battles with the EC, which could potentially cost it more than 10 per cent of its revenue ($3.2 billion) in fines if found guilty.

"We just completed the filing in response to the EC's statement of objections, despite the fact we only had very few weeks to pull it together," says Mr Courtois. "We are pretty pleased with the document we submitted."

The EC Competition Commission has objected to Microsoft's decision to bundle its Media Player software together with its operating system Windows software. It alleges this unfairly hurts rival software firms' ability to compete against Media Player. The EC has also said Microsoft designs its Windows software to enable its own software applications to work better than rivals.

Microsoft's statement of objections document filed with the EC argues that the firm's decision to bundle Media Player with Windows offers consumers a better user experience.

It will also focus on Microsoft's key position as a major investor in R&D in Europe.

"Our key point is our ability to innovate as a company," says Mr Courtois. "This company is going to spend $6.8 billion this year on R&D and it is really about the fact we want to supply a better experience and added value to business people and consumers."

Microsoft understands that there are a number of technologies in the world and is already providing the ability to access any other software application to rivals. This is something the company tried to advocate in its filing, he says.

Microsoft may attend an open forum hearing in Brussels next month on the anti-trust case to put its case across. It turned down a similar opportunity in late 2001 to talk to Brussels. But in recent years there has been a sea change in Microsoft's attitude to regulation, which for much of the 1990s was characterised by a type of arrogant isolationism.

A decade of debilitating anti-trust legal battles in both the US and Europe have taught it to adopt a more humble approach to the outside world than before.

It is noticeable that when Mr Courtois discusses the ongoing EC anti-trust case, he prefaces most of answers with phrases such as "we have a lot of respect" and "I would certainly not criticise EU processes". There are also clear signs that Microsoft would favour reaching a settlement with the EC, in a similar way to the deal hammered out with the US justice department.

"I cannot speculate (on a settlement) but it is certainly our intent if we could find a way on both sides to settle the case it would probably be a very good outcome for both parties," says Mr Courtois, who has been engaged in a charm offensive with European political leaders since becoming European head.

Last month Microsoft hosted its first European government leaders forum in Rome, inviting heads of states from several EU countries. Minister for Communications, Mr Ahern, represented the Republic at the high-profile event designed to curry favour with Europe's politicos.

And if charm doesn't work for Microsoft in Europe, the firm has another ace up its sleeve - more than $40 billion in hard cash.

In a bid to prevent the rise of Linux in Europe, Microsoft is willing to give big discounts and even give its software away for free through its European Government and Education Fund.

"Like any other IT hardware or software firm we have a licensing policy to make sure we respond to the needs of the education sector, and we've had this for more than 20 years. So when you sell to schools and universities you need to sell at a more affordable price," says Mr Courtois.

Microsoft also provides governments and firms proof-of-concept software for free to demonstrate that its technology works.

But Microsoft rivals disagree and believe the firm is once again wielding its power to shut them out of the crucial public sector.

Clearly, Mr Courtois is in for a lively few years in the top job.

A full transcript of this interview is available on The Irish Times website at www.ireland.com