Microsoft May Cut Costs to Beat Linux

In an effort to win big government and institutional contracts when up against Linux, Microsoft is prepared to draw from an internal slush fund to offer its software at deep discounts or even for free, according to a published report.

According to Thursday's online edition of the International Herald Tribune, then top Microsoft sales executive Orlando Ayala sent an e-mail last July authorizing senior managers to draw from a special fund in order to win contracts where the software giant looked likely to lose against open source Linux software.

"Under NO circumstance lose against Linux," the IHT quoted Ayala's e-mail as saying.

Remaining Quiet

Microsoft representatives in the U.K. declined to comment on "leaked or speculated internal documents" Thursday but did issue a statement saying that "the issues raised in the [IHT] story touch programs that the company has adopted to make technology available to customers at low prices."

At the time the e-mail was reportedly sent Ayala was the number-three executive at Microsoft, in charge of sales and marketing, but has since been transferred to lead a new business focused on small and medium-size companies, the paper said.

While Linux has a tiny share of the desktop software market compared to Microsoft's over 90 percent, the cheap, open source alternative does have a growing share of the server software market, and has been gaining attention with governments looking to shift to what some see as a more stable, low cost alternative, particularly in emerging markets.

Antitrust Concerns?

The report also details other aggressive strategies reportedly employed by the company, such as offering discounts on the hourly rates for its corporate consulting services and covertly collecting information on competitors.

The tactics, if true, could potentially run the company even further afoul of government regulators, which have been pursuing Microsoft for years over its dominance in the PC software market.

Late last year, after Ayala's e-mail was reportedly sent, Microsoft finally reached a settlement with the U.S. Department of Justice to loosen its grip on the desktop software market by sharing some source code, unbundling products, and taking a more evenhanded approach to competitors.

The European Union is also scrutinizing the company and has generally stricter antitrust laws than the U.S. Steep discounts given by a dominant software provider could potentially violate E.U. antitrust laws, the IHT speculated.

Representatives for the company in the U.K. would not comment on possible E.U. regulatory action in light of the report, saying only that the company continues to work constructively with the E.U. for a resolution of its case.