(IDG News Service) — Microsoft Corp. Chief Executive Officer Steve Ballmer didn't mince his words when he wrote in a Wednesday memo to all Microsoft Corp. employees that noncommercial open source software, particularly the Linux operating system, was a "competitive challenge."

With companies keeping a tight lid on IT spending during these tough economic times, "free" software, he wrote, is an "interesting alternative" to commercial software. Complicating the situation, he continued, are companies, like IBM Corp., whose support of Linux "has added credibility and an illusion of support and accountability."

The memo came on the heals of an annual retreat that Ballmer spent with other top Microsoft executives. While the document covered a bunch of issues, ranging from innovation and product development to people and productivity, it clearly identified Linux and open source as a growing threat to the company, requiring action at the highest level.

Interestingly, Ballmer's remarks on Linux followed some recent open source developments in Germany, one of Microsoft's key international markets but also one with a rapidly growing Linux fan club.

Last month, for instance, the Munich city government, after several months of intensive research and debate, decided to migrate its entire computer network to Linux, dropping Microsoft's Windows system in the process. (See Resources below.) Munich, Germany's third largest city, will equip all of the 14,000 computers in its public administration with Linux and other open source office applications, in a move that could encourage other big German cities to follow suit.

Munich chose Linux despite new favorable licensing conditions offered by Ballmer, who took time out of his busy schedule in April to visit government officials in Germany.

Microsoft has been scrambling to find ways to retain huge public sector software contracts in Germany ever since the government, in an effort to lower costs and increase security, agreed last year to a partnership with IBM Corp. for the delivery of computers with the open-source Linux operating system to the public sector.

True, Germany may be one tiny dot on Microsoft's global radar, but it's growing support of Linux is sending a powerful signal to other governments, organizations and enterprises considering open source as an alternative.

Acutely aware of this threat, Ballmer stacked up a list of arguments against the use of Linux in his memo. Here are a couple:

• "While the noncommercial model may lead to many flavors of software, getting broad, consistent innovation requires coordination across many technology components. In the event of needed enhancements or fixes, the Linux development community, no matter how well-intentioned, simply cannot advance Linux the way we can and must innovate Windows."
• "Windows Server 2003 is receiving strong partner and customer support ...as well as a lot of interest in its total cost of ownership compared to Linux. A Microsoft-sponsored study by IDC last fall concluded that the cost advantages of Windows Server 2000 compared to Linux are 'significant,' including lower total cost of ownership in four of the five most common IT workload environments. I'm confident that the results will be even better when Linux is compared with Windows Server 2003."
• "People have asked me: If competing with Linux is so important, can the company wait as long as it will take to get Longhorn done? My answer is twofold. First, the Windows Server 2003 generation of products offers stronger performance and value than Linux in most IT scenarios. Second, while we are not taking a relaxed approach to Longhorn, we will do the work and take the time required to get it right, because it truly is the next quantum leap in computing, which will put us years ahead of any other product on the market."

Yet, Ballmer seemed to be warming up to the idea of letting developers look inside the big Microsoft software development machine more deeply than in the past. While not going so far as to say that Microsoft intends to open its code in the same way the open source community does, he did suggest in the memo that the company needs to become more of a "community" player.

"We need to significantly step-up participation in community and on-line forums," he wrote. "We should look at communicating about new product design to customers earlier through on-line design discussion. For some products, it makes sense to publish regular builds of new products on-line, for community feedback."

Ballmer's memo reads like a statement of war against noncommercial open source software. And considering how Microsoft has demolished numerous competitors in the past, the Linux community should brace for a long, tough fight.