Is Microsoft losing its grip?

Microsoft stands at a crossroads this month, as it tries to push its biggest customers onto a new licensing scheme under which they pay a maintenance fee instead of buying upgrades.

There were signs of a global backlash that could promote the use and development of rival products, particularly open source.

The company looks to be riding high, with earnings up seven per cent for the year to June and 46 million copies of Windows XP sold since October, its fastest selling software ever.

But Microsoft cannot maintain revenues indefinitely on new versions of old products, and for some time it has been trying to move to selling software as a service.

The new licensing, which does not apply to private users, was delayed twice in the face of resistance from enterprise customers.

The deadline for the latest version, Licensing 6, ran out on 1 August, by which time an estimated 40 per cent of users had not signed up. They now face paying the full price for upgrades, instead of the usual discount for users of old versions.

Many complained that the new 'Software Assurance' scheme means paying considerably more. Microsoft is aware that it risks pushing users to rivals but, unchastened by its court battles over monopoly abuse, it still appears to be trying to lock people into its software.

Its latest Palladium strategy on security, and its .Net e-services programme, have both been criticised on this count. Even companies that switch to Unix or Linux could find themselves filling the Gates coffers as they have to buy a client licence for every machine accessing a Windows server facility.

This aggressive strategy could work of course: it would be no small task for big users to switch from Microsoft or mix in other systems, and many don't want the hassle.

But most PCs are used for simple word processing and accounts that do not require costly Microsoft bloatware. If international pressure mounts for open, interoperable systems, and open source usage hits critical mass, Microsoft's grip could be loosened.

Governments paying millions to Microsoft are already looking at alternatives. Britain's Office of Government Commerce reckoned it saved £100m by renegotiating its software deal, and other Government departments have been urged to consider open source software where possible.

Government departments in Norway are reported to be switching to Linux because ministers say that Microsoft's new rules oblige them to buy needless upgrades.

But it is in developing countries where the greatest danger may lie. Neither China nor India is short of good coders capable of producing an operating system, especially as much of the work has been done in open source.

In fact China has already started a project to develop an alternative to Windows. In Peru a congressman plans to have Microsoft code in all government departments replaced by open source, and Malaysia is considering allowing schoolchildren to use pirated software in a bid to increase IT literacy.

Many companies are reported to be looking at Sun's Star Office and Linux or Solaris as an alternative. Corel is pushing its own flavour of Linux, and Wordperfect for Windows.

Apple too is trying to woo Windows users, although it may have missed its chance. It succeeded, with Mac OS X, in marrying its famous interface to a Unix core to produce a rival worthy of Windows. If it had done that on PC hardware, it might have had half the world knocking on its door by now.