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