Linux is Pushing Microsoft Pricing Down

The latest news to emerge in the Linux v Windows battle is that Microsoft has cut its prices (rumour suggests by more than half) in an effort to dissuade the city of Paris from moving to Linux on the desktop. Paris is in upgrade mode and intends to spend nearly $200 million with IT suppliers in the next three years, a significant proportion of which could go to Microsoft. News emerged over a year ago that Microsoft had a fund set aside for competitive discounts in an attempt to address the Linux threat, and it is presumably drawing on this in an attempt to maintain Paris as a customer.

The problem with this approach is that it can only be a holding strategy. The more it becomes apparent that Microsoft will cut prices to head off a Linux challenge, the more customers are going to consider Linux at least as a means of getting otherwise unattainable discounts from Microsoft. The probable outcome, if such a strategy becomes common, is that Microsoft will be forced to cut prices anyway. If differential pricing becomes too common it becomes unsustainable.

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