Microsoft Loses Battle For Munich

Neither a lower bid nor an emergency visit by Microsoft CEO Steve Ballmer could convince Germanyis third largest city to choose Windows over Linux for an upcoming PC upgrade.

According to a story in USA Today, the city council ended up voting 50 to 30 to switch 14,000 desktop PCs to SuSE Linux and IBM for $35.7 million. The move was made despite Microsoft cutting its bid to $23.7 million and making huge concessions in other areas such as software unbundling, training and support.

The initial price for the upgrade was not foremost on the minds of the voting council members. They were also concerned with other costs that could come up in the future. From the article:

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, Microsoft could ? and has been ? naming its own price, she says.

There were also issues of flexibility and return investment where Windows was found to be lacking. According to Harry Maack, a project manager for technology strategist Unilog Integrata, SuSE Linux more closely met the cityis needs.

"On price and technical criteria the advantage was Microsoftis, but the gap was not that big," Maack says. "On strategic issues, it was clearly open-source, and the gap was very great."

The potential ramifications of this decision reach beyond the immediate monetary concerns over the loss of a single large customer. This open-source victory will make it the largest organization to ever use Linux for everyday Linux desktop use, a very lucrative part of Microsoftis business model.

"Whatis 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. "Itis a threat to Microsoftis 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, Microsoftis 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.

The expansive article can be read in its entirety on the USA Today Web site.

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