June 4, 2002

Mitchell E. Daniels, Jr., Director
Office of Management and Budget
Executive Office Building
17th Street & Pennsylvania Avenue NW
Washington, D C 20503

RE: Procurement policy and competition and security in software markets

Dear Mr. Director:

We are writing to follow up a topic from our April 8, 2002 meeting. Can the federal government use its purchasing power to solve issues concerning security and competition in the software market? As you know, Microsoft has an astounding market share for desktop operating systems and office productivity software. The Department of Justice is spending years in court trying to restrain very modest elements of Microsoft's monopoly abuses. There are serious problems with the Microsoft monopoly, including those associated with harm to innovation, security, and pricing. We request the following information to advance constructive deliberations on this subject:

1. Approximately how much money has the federal government spent each of the past seven years to license MS Windows for the client platforms?

2. Are there estimates of the percent of federal client PC operating systems and word processing and other office productivity products that are licensed from Microsoft? Is this market share increasing or decreasing?

3. How much money would it cost the federal government to purchase outright the code to the components of a high quality office productivity package, including the basic functions of word processing, spreadsheets, presentation graphics and email clients?

4. Does the lack of competition in client software markets create security risks for federal agencies? For example, does a "monoculture" make the federal government more vulnerable to computer viruses or to unauthorized access to federal computers?

5. Would it be easier to manage security concerns if client software was open in terms of the source code?

USE OF PROCUREMENT TO PROMOTE COMPETITION

6. OMB should consider if Microsoft should be required (as a matter of procurement policy) to fully disclose the file formats of its office productivity and multimedia programs, so that the data created in such programs could be reliably read by non-Microsoft software.

7. OMB should consider a cost benefit analysis to determine whether dominant software providers should make their source code public, in order to enhance interoperability with products offered by smaller competitors.

8. OMB should consider if limits on the number of purchases from any one firm would enhance competition for PC operating systems and office productivity tools, and if such enhanced competition would have significant benefits in terms of licensing fees.

9. We note that limits on market shares are feasible to implement in the client area, because Apple has a very good PC operating system, and both Corel and IBM have quite functional products for word processing and other office productivity tools, that suffer primarily because of interoperability issues with Microsoft's products. If there existed more demand, Linux office productivity tools might find a market, or new operating systems like the BeOS might become more important alternatives, particularly if file formats were more transparent and interoperable.

10. We also note that Microsoft's permitted market share could be both a carrot and a stick the government could use to address Microsoft's efforts to resolve interoperability issues with rival software products. A determination that Microsoft was sabotaging rival products or refusing to disclose interface information to rival software makers could be the basis for a lower cap on the dominant firm's market share.

11. OMB should also consider if dominant office productivity tools, including word processing, spreadsheets and presentation graphics, should be required to provide high quality ports to other operating systems, including platforms such as Linux or the BeOS. Such a policy could be enforced by having a sliding scale for the permitted market share, depending upon the number of operating systems the product would support.

BUY VERSUS LEASE

12. OMB should undertake a cost benefit analysis to compare the benefits from the following two strategies:

a. Licensing office productivity tools from Microsoft,

b. Buying outright the code for office productivity products, and releasing that code into the public domain.

13. In undertaking the studies above, OMB should also consider the savings to the public, for example, the benefits of reduced expenditures on older software tools that are often upgraded only to overcome interoperability problems deliberately created by Microsoft as an "incentive" to upgrade software licenses.

CONCLUDING THOUGHTS

The federal government spends billions of dollars on software purchases from one company that is continually raising prices, making its products incompatible with previous versions in order to force upgrades, deliberately creating interoperability problems with would-be competitors, and is well known for engaging in many other anticompetitive practices. Would a business that was spending this much money be such a passive consumer?

We would like to meet with your staff to discuss these or other uses of federal procurement policy to reduce waste and promote competition.

Sincerely,

Ralph Nader

James Love