Why Microsoft's EU problem isn't going away

Jerry Yang may have a dysfunctional relationship with Carl Icahn, but he can take comfort knowing that Europe's top regulator is making Microsoft equally miserable.

The ever-entertaining Neelie Kroes, who is the European Union's competition commissioner, again poked her finger in Steve Ballmer's eye. Earlier this week, she encouraged EU member countries to break their reliance on a single software supplier. (Guess who she had in mind?)

"I know a smart business decision when I see one--choosing open standards is a very smart business decision indeed," Kroes said in a speech. "No citizen or company should be forced or encouraged to choose a closed technology over an open one."

As Loren Feldman's sock puppet sendup of Shel Israel is wont to say, "Fascinating!"

Obviously, the decision to go open source or proprietary comes down to customer preference. But when a powerful European regulator starts picking sides--if not taking on the unofficial role of technology cheerleader--Microsoft must be wondering whether it will ever get a break.

The company has already racked up more fines than any other company in the history of European antitrust enforcement. Earlier this year, the EU hit Microsoft with a $1.3 billion penalty for failing to comply with a 2004 antitrust ruling and for charging "unreasonable" prices to rivals seeking documentation for workgroup servers. In recent months, however, Microsoft has pushed a charm offensive. But whatever thaw it had with Kroes has proved short-lived.

"There were couple times Ballmer came out beaming from meetings (with Kroes) thinking they had ironed out remaining issues. But Europe's a different animal," said Michael Cusumano, a professor at the Massachusetts Institute of Technology's Sloan School of Management. "It's the place where the open-source movement originated and they don't really have any dominant infrastructure players. Their history is that Europe's market has been fractured across different countries with different laws."

And no doubt Microsoft is a very different type of company than the sort Europeans have had to deal with. Even though they may have relationships that are cordial on a personal level, Microsoft views its market as global and reserves the right to create linkages among its different products. In the U.S., we understand that a bit more, but rightly or not, Europeans feel they've been victimized.

That's why Microsoft has been saying the right things about open source in public. In March, the company's chief counsel, Brad Smith, told a crowd of open-source developers that Microsoft believes "in a bridge that is scalable, that is workable, that is affordable...that's a hard bridge to build. But I will say this--today more than ever--that is a bridge we very much need to build." A couple of months earlier, Microsoft also pledged not to sue open-source developers for products that connect to Microsoft software and would share communication protocols governing how its software products communicate.

That hasn't made any impression in Brussels. Kroes publicly encouraged both the Dutch Parliament and government to further embrace open standards. Meanwhile, EU regulators are investigating whether Microsoft's guilty of improper competitive practices around Internet Explorer as well as any barriers rivals face making their products interoperate with Office.

Microsoft's Jason Matusow recently had a interesting post explaining why he believed technology mandates didn't make for good public policy.

Technology providers want their current and future technologies considered on the merits of the technology and the value those technologies bring to those who choose to consume it. If a government mandates a specific technology and/or class of technologies, they are unnecessarily restricting their own choices. Inevitably statute moves more slowly than technology, and mandates subsequently lead to sub-optimal choices.

He has a point. Unfortunately for Microsoft, the company's in a permanent bind. It can try to accommodate to open standards but it will not adopt open source as a primary standard. And that means Microsoft is always going to run into an impasse with Kroes or other like-minded overseas regulators.

"I think there is common ground," Cusumano said. "They just haven't found it yet."