Microsoft Makes Nice on Open Source

SAN FRANCISCO -- With a shove from Europe, the new guard within MicrosoftMSFT has dragged the company into the era of the open platform.

As Chairman Bill Gates prepares to retire, the fresh blood within the Redmond, Wash., company has convinced the company to change course. Once renowned for jealously guarding market share for its proprietary software, Microsoft opened its major product lines to the open source developer community Thursday.

While espousing a new set of principles embracing openness, which the European Commission immediately scoffed at, Microsoft backed it up by publishing on its Web site more than 30,000 pages of documentation, with more to follow in the coming months.

Developers will pay no licensing fees for the codes to its Windows application programming interfaces (APIs), which enable interoperability between programs.

Microsoft is designing new APIs to allow developers to write new document formats for Word, Excel and PowerPoint software that consumers may choose as their defaults. Additionally, Microsoft will offer patent licenses on "reasonable, nondiscriminatory terms and at very low royalty rates," general counsel Brad Smith said on Thursday's conference call.

"This cultural change ... will take the company much farther than even they think they are going to go," consultant Rob Enderle predicted in an interview.

As managers who had traditionally wielded power within Microsoft have "cycled out" in favor of open-source proponents, such as chief software architect Ray Ozzie, the company has made a gradual transition, prompted initially by Europe's crackdown on its proprietary strategies.

"It's triggered by the regulatory pressure primarily out of Europe," Enderle said.

But the company has also changed from within. The change has been "in the works for some time," as people were promoted from within, or came on board through acquisitions, or as new hires replacing retirees. "The result is a significant management change ... a change in Microsoft's personality," Enderle said. This is just the first major example of changes to come at Microsoft, he added.

"Ray Ozzie has a different set of beliefs than Bill Gates did," Enderle said.

In January, the company announced the departure of several managers, including Jeff Raikes, president of the Business Division, who leaves in September. His successor, Stephen Elop, has already come on board from Juniper NetworksJNPR.

The European Commission quickly issued a response to Thursday's announcement, stating that it welcomes any move toward interoperability at Microsoft. "Nonetheless, the Commission notes that today's announcement follows at least four similar statements by Microsoft in the past on the importance of interoperability," the Commission stated, adding that it has just launched two new investigations into Microsoft practices regarding lack of interoperability and the tying together of some of its products, which is viewed as preventing competition.

"Today's step is qualitatively and quantitatively different from any step that we've taken in the past," Smith said in response to the EC statement. "We recognize that it's committing the company not just to mere words."

In addition to Thursday's initial posting of documentation, the company will post "many additional thousands of pages of technical documentation" covering all of Microsoft's high-volume products by the end of June, Smith said.

While the company did not address the policy change's impact on revenue, CEO Steve Ballmer said on a conference call, "The Net should in the long run be a good thing for our shareholders," as outside developers create extensions to Microsoft products.

Goldman Sachs analyst Sarah Friar said in a note that the policy changes will have "little near-term impact on the business fundamentals. Longer-term it may help Microsoft's fairly acrimonious relationship with the EU."

Shares of Microsoft were recently down 8 cents to $28.14.