Not So Fast, Linux

Anticipation built for weeks be forehand. The city government of Paris, with

17,000 desktop PCs and hundreds of servers, was mulling a technology shift that

would have been unthinkable just a few years ago: retiring Microsoft Corp.

Windows software from every one of its machines and converting them to the Linux

operating system. So when the results of a feasibility study were finally

announced on Oct. 13, the recommendation to stick with Windows provoked shock

and dismay among Linux fans. "I'm totally bummed," wrote one French

blogger.

In Europe, software isn't just about bits and bytes anymore. It has become

a matter of politics. In city governments from Paris to Vienna to Rome, civil

servants and politicians are caught in a fight over competing visions of the

future of computing. On one side is Microsoft, which is trying to hold on to its

dominant position in PC and server software. On the other are factions backing

the open-source model, which flouts convention by selling software cheaply -

or giving it away - and sharing code. The contest playing out in city halls

has turned Europe into a key battleground in the global software wars.

It's no wonder open-source is fueling such passion. European governments

chafe at Microsoft's market power and want to encourage alternatives.

"They don't like being beholden to a monopoly," says analyst Philip

Carnelley of researcher Ovum in London. At the same time, many policymakers see

Linux as Europe's best chance to reclaim a role in an industry dominated by

American giants. Two of the world's three largest Linux sellers started in

Europe.

THE REICHSTAG Linux proved buggy in Berlin

There's a cultural element, too. Europeans have an affinity for Linux

because it was created by a Finn, Linus Torvalds. And the communitarian culture

of the open-source movement strikes a chord with the political Left. "There's

an attraction to a business model that is closer to utopian socialism,"

says François Bancilhon, chief executive of Paris-based Linux software maker

Mandrakesoft, which sells and supports Linux software.

An Undisclosed Discount



So far, Microsoft has taken most of the lumps in Europe. Vienna has begun

switching over hundreds of its 16,000 PCs to Linux. Norway's second-largest

city, Bergen, has decided to convert a score of database servers running the

UNIX operating system to Linux, not Windows, and could eventually move 32,000

PCs used in its schools to Linux as well. But the most closely watched case is

Munich, which aims to switch 14,000 desktops to Linux by 2008, despite Microsoft's

offer of a 35% discount to stick with Windows. The number of such defections

clearly caught Microsoft off guard. "Microsoft wasn't prepared for a

popular uprising," says Rob Enderle, principal analyst at San Jose (Calif.)

consultancy Enderle Group.

Yet over the past 18 months the giant from Redmond, Wash., has unleashed a

fierce counterattack, and there are signs that it's working. Paris was only

the most recent and important victory. Last January the borough of Newham in

London reversed course on a planned change to Linux after a consultant's

report said Windows would cost $600,000 less to support each year. To seal the

deal, Microsoft offered Newham an undisclosed discount. The Finnish city of

Turku also changed its mind about dumping Windows after a three-year experiment

with Linux showed employees resisted the switch. "We're seeing a turning

of the tide," says software analyst Tom Berquist of Citigroup's Smith

Barney unit in San Francisco.

The comeback is classic Microsoft. After all, this is the same company that

missed the rise of the Internet and then went on to crush browser rival Netscape

Communications Corp. Microsoft has thrown itself into tackling Linux, hiring

dozens of experts in open-source software and offering deep discounts to hold on

to clients. It's also sharpening its pitch to address more than just software.

"We need to talk in a broader way about investment protection, security,

and tying together different kinds of software," says Ashim Pal, Microsoft's

European director for platform strategy.

Now, Microsoft hosts booths at Linux trade shows and has set up a Web site

brimming with customer testimonials and market-research studies poking holes in

Linux. Last summer, Microsoft mounted a four-city "Get the Facts" tour

of Britain to pitch its story to IT managers. And it took the unprecedented step

of inviting 60 government agencies around the world to view the top-secret

source code for Windows and so allay concerns about its security and blunt the

advantage of openness enjoyed by Linux. "Transparency increases

trust," says Jason Matusow, director of Microsoft's shared-source

initiative.

Microsoft's charm offensive isn't all that's vexing Linux. After an

initial rush of excitement, governments are weighing more factors. Linux and

open-source programs may be cheap, but they can cost plenty to implement. Munich

budgeted $35.7 million for its Linux makeover - $12 million more than

Microsoft's last-ditch offer.

For Paris, the killer was the expense of having to rewrite programs and train

thousands of employees on new software. The German city of Heidenheim recently

chose not to adopt Linux for similar reasons. "We would have to spend a lot

of money to make it happen," says Carsten Urban, head of the city's IT

department.

Linux partisans aren't about to surrender. Bancilhon predicts Paris will

opt for smaller-scale Linux rollouts in neighborhood offices. Richard Seibt, the

European president for U.S. software maker Novell Inc., sees no flagging of

interest in Linux among European governments. "What has been announced so

far is just the tip of the iceberg," he says, noting that Novell has

hundreds of potential government sales of Linux-based products in the pipeline

worldwide. All told, figures Gartner Inc. (IT ), the proportion of PCs sold with

Linux installed will climb from 4.4% last year to 5.7% in 2005. A big shift. But

it might be a lot bigger if Microsoft weren't turning up the heat.

By Andy Reinhardt, with Raphael Kahane in Paris and Gail

Edmondson in Frankfurt in BusinessWeek. Copyright 2004 by The

McGraw-Hill Companies, Inc