Windows Phone Thoughts: Microsoft Warns Of Open-Source Pricing Threat

"Microsoft warned in a recent Securities and Exchange Commission filing that it may be forced to drop the price of its software because of the threat of open-source software. "The popularization of the open-source movement continues to pose a significant challenge to the company's business model, including recent efforts by proponents of the open-source model to convince governments worldwide to mandate the use of open-source software in their purchase and development of software products," Microsoft said in a 10-Q report for the quarter ending Jan. 31."

Now here's something interesting - Microsoft is essentially saying that they're going to have to reduce the price of their software to compete with Open Source solutions and thereby make less profit. I'm no market expert, but I assume they're doing this to avoid the stock drop that would occur if Microsoft announced they were cutting the prices of their software by 30% and would therefore earn 30% below their earnings goal. This assumes, however, that volume would remain static if prices were dropped. I don't think they would - I think there's a pricing sweet spot for Office XP and Windows XP where people would upgrade easily. This volume in turn might compensate for the lower prices...which would allow Microsoft to announce better than average profits after having lowered them previously.

And there you have my very rudimentary understanding of the market. What's your conspiracy theory? 8)