The company stated: 'The popularisation of the open source movement continues to pose a significant challenge to the company's business model.
‘To the extent that if the open source model gains increasing market acceptance, sales of the company’s products may decline, the company may have to reduce the prices of its products and revenues and operating margins may consequently decline.’
Fierce rival Sun Microsystems has embraced open source with open arms in what many believe is an effort to undermine Microsoft with Scott McNealy, its president and CEO, regularly banging the drums.
Last summer the Cabinet Office announced its intention to ‘seek to avoid lock-in to proprietary IT products and services’, and promised to consider open source solutions in future IT procurements.
Robin Bloor, chief executive of IT analyst Bloor Research, said the filing did not signify a dramatic change in Microsoft’s pricing. ‘The filing is supposed to declare any risk to its business for the benefit of shareholders.
Open source is not a new threat.’
But he added: ‘Open source is keeping Microsoft more honest.’ Cutting prices will not prevent the take-up of open source, he said. ‘I don’t think users are going to open source to get a price saving. It has become a fashion.’
A separate challenge outlined in the recent filing is EC proceedings against Microsoft that allege it has ‘failed to disclose information competitors need to interoperate fully with Windows 2000’.
Microsoft is making its software more accessible with its new government security programme. Under this initiative, Microsoft discloses the secrets of its source code to governments and agencies to reduce security worries.