Microsoft opens key software details to rivals

REDMOND, Washington Thu Feb 21, 2008 10:09pm EST

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REDMOND, Washington (Reuters) - Microsoft Corp, faced with regulatory concerns in Europe and customers struggling with complex computer systems, said on Thursday it would publish critical information so rival programs can work better with Windows, Office and other major products.

The world's largest software maker will share the underlying technology that connects its software to other programs, considered a built-in advantage that has been the basis of antitrust scrutiny of the company.

Microsoft's new policies are seen as a way of heading off future battles with regulators in Europe, Asia and the United States who have long accused it of using its dominant position to move into new businesses and squeeze out competitors.

Microsoft said it published more than 30,000 pages of Windows documentation that had only been available previously with a trade secret license and it also pledged to license patents at low royalty rates and without discrimination.

Microsoft said it would follow up with more actions to address all the demands of European regulators, although the European Commission said Thursday's move did not resolve a key issue about how Microsoft's products are tied together and that Microsoft had made similar promises before.

The company's moves bring Microsoft closer in line with a software development trend taking root on the Internet based on creating new programs using parts of existing applications. Web companies such as Google Inc and Facebook embrace open systems, as well as community-developed software such as Linux.

Microsoft said customers are asking for all computer systems to work with one another regardless of whether they run on Windows or Linux. The customers also want to be able to move and share information and data easily between systems.

Chief Executive Steve Ballmer, who called the financial impact from Thursday's shift "relatively minimal," acknowledged that Microsoft may lose some market share as a result of these policies, but said what is good for customers will ultimately be good for the company.

"Microsoft's long-term success depends on our ability to deliver a software and services platform that is open, flexible and presents customers and developers with choice," he said.

Microsoft has been criticized for shutting out competitors by incorporating programs such as its media player closely into its Windows operating system and by keeping secret product details that rival developers need to ensure smooth operation with Windows and other Microsoft products.

In one example cited by Microsoft, it will be easier for outside developers to create a new e-mail application to rival Office Outlook because they have the same information as Microsoft's own developers about how to link up to Microsoft's Exchange server.

EUROPE WANTS MORE

In September, a European Union court upheld a landmark ruling that Microsoft had abused its dominant market position.

The court endorsed EU sanctions against Microsoft for bundling together software applications and refusing to give rival makers of office computer servers information to allow their products to work smoothly with Windows.

European regulators said Microsoft's announcements on Thursday are similar to pledges made by the company in the past. Microsoft said it was a significant step, noting it has already published key documentation on its Web site.

"This announcement does not relate to the question of whether or not Microsoft has been complying with EU antitrust rules in this area in the past," the EU said on Thursday.

Microsoft's announcement did not address allegations of product bundling, but the company said it will take additional steps in coming weeks to address all of the EC concerns.

"Microsoft kind of kept its software products as a walled garden and it is kind of opening the gates to the garden," said Toan Tran, a Morningstar analyst.

"The product-tying issue is much more important because the Windows business model is built on continually improving the product," he said. "If Microsoft is restricted from adding new features, it restricts the Windows business model."

PLAY NICELY TOGETHER

Analysts said large organizations, or enterprise customers, will appreciate being able to integrate different software applications more easily.

"The enterprise is an environment that rewards companies that are most open," said Mike Gilpin, vice president and research director at Forrester Research.

Microsoft also pledged not to sue open-source developers for development or noncommercial distribution of the software blueprints it makes available.

In January, the European Commission launched new antitrust investigations into Microsoft to see whether the company broke competition rules to help its Web browser and its Office and Outlook products.

Microsoft said the moves announced on Thursday apply to these products: Vista, Windows Server 2008, SQL Server 2008, Office 2007, Exchange Server 2007 and Office SharePoint Server 2007, as well as all future versions of the same products.

Microsoft shares closed down 12 cents at $28.10 on the Nasdaq.

(Additional reporting by Duncan Martell in San Francisco and Peter Henderson in Los Angeles)

(Editing by Andre Grenon and John Wallace)

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