This week the Danish Competition Authority (DCA) released a report (official English press release) recommending a continuous parliamentary mandate of both ODF and Open XML for the Danish public sector.

Morten Messerschmidt – a former member of the Danish parliament, now member of the EU parliament – and Morten Kjærsgaard – the chairman of the Danish Open Source Vendor Association (OSVA), a political lobby organization, which board members includes among others IBM, ORACLE/SUN and Novell – reacted to the DCA report by criticizing it for being incoherent and “a wasted opportunity”. This reaction is worth noticing, since the DCA report was in fact the brainchild of both Morten Messerschmidt and OSVA. The reaction clearly shows that the DCA report on the competition in the market for office productivity software did not turn out the way that neither Morten Messerschmidt nor OSVA had expected or hoped for.

The DCA Report

In a number of key areas the DCA report is very clear in its conclusions and recommendations, i.e.:

• It is best for the competition that Denmark continues to mandate multiple Open Standards for document formats – i.e. both Open XML and ODF
• ODF is inadequate for interoperability. ODF does not meet key areas of functionality and falls short of what consumers expect from modern office productivity software. Also, ODF is clearly underspecified in some of the key areas that ODF seeks to address (short coming in regards to track changes being just one such example).
• Microsoft Office 2007 w/ Service Pack 2 is currently the only product that supports both Open XML and ODF directly in the product. However, DCA take effort to explain that this can change in the future as Open Standards and their usage matures. The DCA states that if a customer or public entity values interoperability, then Microsoft Office 2007 SP2 is currently the best offer available, and goes on to say that Microsoft Office 2007 SP 2 does a noticeably better job than any of the converter based solution available elsewhere today.
• The DCA repeats what both ISO, and a Danish Expert panel (part of the Danish political process and yet another brainchild of Morten Messerschmidt and OSVA) have already concluded previously: i.e. that both Open XML and ODF are to be considered Open Standards, meaning that anyone can choose to implement either one or both of them as they like. In other words; both Open Standards eliminates marked barriers and enables anyone to choose to participate freely in the network effects evolving around these Open Standards.

The DCA wisely chooses not to make precise predictions of the future, but limits themselves to highlight the fact that the availability of free software packages such as OpenOffice as well as on-line offerings such as Google Apps clearly represents a new development in the market, which effectively threatens the current market position of Microsoft. Likewise, the DCA draws attention to current economic crisis; highlighting that the crisis represents a factor in favor for license free software.

The Microsoft Market Position

The DCA report – not surprisingly – reflects that Microsoft currently has a dominant position in the market for office productivity software with more than 90 % marked share. At the press briefing held by the DCA, a journalist pointed to Microsoft positions in this market, asking the DCA if: a) something politically ought be done to reduce Microsoft market share, and if b) a market share above 90 % by itself should to lead to a political regulating mandating the use of only ODF in the Danish public sector?

The DCA’s reply to these questions was interesting and provides valuable insights. The DCA replied:

• Nurturing a well-functioning market is fundamentally about ensuring general conditions for companies to compete with each other. It is however not about using one particular standard (i.e. in this case ODF) in order to exclude of disadvantage a given market player (dominant or not), especially not if mandating this particular standard happens at the expense of the consumer.
• Open Standards is a positive factor for the competition as a whole. In the case of ODF and Open XML it is given that both as are still rather young and must be considered immature in the market place and therefor it is too early to estimate what effect these standards will have in the long run, still they are both Open Standards and that is definitely a new and positive thing for the competition.
• It is not by itself and issue nor illegal being a big or a leading player in a market.

Innovation Is Key

A market without competition is generally characterized by a lack of innovation. However, it is clear that the innovation in the software market is characterized by an exceptional high level of innovation compared to other markets. Just think of the rising number of office productivity software suites available today and of the number of new business models that has been introduced in recent years - including those business models, which enable companies to make good money while offering office productivity software without a license fee.

Morten Messerschmidt and OSVA’s disappointment with the DCA report seem to have been founded on a false hope that the DCA report had revealed a magic wand, which could have been swung to reduced Microsoft market share from one day to the next. Instead, the DCA report demonstrated that the (self-) regulation of the market is in fact already taking place as Open Standard are quickly gaining grounds and replacing yesterdays closed proprietary formats. The file format barriers has thus been removed and the network effects are being opened for all to benefit.

Now it is up to all the IBM’s and all the Google’s and all the others – including those we have not yet heard of – to take advantage of the rapid changes in the market place to compete and innovate. To compete and innovate obviously requires hard work. Winning customers does not happen from one day to the other. Nevertheless, it is exactly this dynamic nature of the market place that defines what competition is all about – i.e. to come up with something that is better, faster, reducing customer costs etc. etc. and thereby benefiting customers in order to sell products and services and wining in the market place.

It would indeed be a sad day for all of us, if this was not the case and competition was mearly a question of waiting for politicians to agree among themselves on what standards to mandate in a given areas for a given a number of years. There is no doubt that such a politically centered approach to competition, for obvious reasons, would do nothing but stifle innovation now and in the future, for larger and smaller companies alike.

Being big is not the issue

I believe that it is both reasonable and fair that companies like Microsoft, with strong positions in the market place, should expect increased study and answer to higher expectations from the world-wide society they are a part. However it is important that we also not forget that being big and having a strong market position is neither illegal nor per se a problem for competition or the society – and this is exactly what we learn from reading the Danish Compatition Authority report.