Ballmer explains why Microsoft is less freaked out by free programs than it was a few years ago

Fans of the popular Linux software program have long fretted that software giant Microsoft will attack Linux by claiming the free program violates Microsoft's patents.

So far nothing has happened. But in an interview with Forbes.com, Microsoft Chief Executive Steve Ballmer wouldn't rule out such a showdown. Ballmer also explains why Microsoft, which on Thursday announced a sweeping reorganization of its Windows division, is less freaked out by free programs than it was a few years ago.

Forbes.com: Right now, I can go out and get a free alternative to just about every product Microsoft sells. Why do people keep paying you for something they could get free?

Ballmer: One, people value their time. Our stuff does more, and they like that. Two, people value their time, and those [free] things tend to be clunky. Let's say you think you can save $50. And then you go and waste three hours. You tell me how quick that payback is. You can sketch that out at the enterprise level as much as you can at the individual end-user level. So people value their time, and people value their capability. Frankly, people value not only the compatibility our stuff has with itself, but they value the add-ons and the third-party customization that people have done. As long as we keep pushing the pace of innovation and delivering that value, I think we have a great opportunity.

You've seen it in the marketplace. Some people, especially business customers, want some kind of corporate entity standing behind these things. You know, IBM doesn't stand behind Linux. They promote Linux, but if there's a bug in Linux, IBM is not the responsible party to fix that. It's whoever in the community. And you know, let's say that person has a death in the family. I'm not saying we're perfect, but at least you can expect appropriate commercial responses out of a commercial entity. I think those things are important to enterprise users.

Clearly something I'm saying must be right, because that is what's happening. People on television are going on about Writely [an open source word-processor recently acquired by Google]. We've been competing against free alternatives for years; Star Office to Open Office, da-deet, da-deet, da-deet. I'm not saying it's not a real competition. Maybe the world has exactly what it wants. It has us moving fast and hard, keeping our prices down. And even if the other guy doesn't get any traction or momentum, the other guy has no cost structure. So they are not going away either. Maybe that is what the world wants. Put the courts aside, we have a lot of competition. We have to outrun this phenomenon. And I think we're doing a good job of it. But if we let up for a minute, I think there are issues. You would say to me, if we stop, if we're no longer more functional, if we're no longer a time saver, if we're no longer compatible, then that other stuff will gain traction.

I get the sense you're less worried about the open source movement than you were a few years ago.

I'm very focused on it, and I remain very focused in on it. But after you've been competing with something for a while, it doesn't mean you can stop, but it means you kind of know what you have to do to beat the other guy.

How closely do you follow the open source world? Do you watch the debates over the new GPLv3 license? Do you get that granular about what's going on out there?

We have people that do. When there's something important, I get flagged. Absolutely. I probably know more now than I did six months or a year ago, about what's going on. So I'm getting smarter every day. But you know, three years ago we said this is a new phenomenon, and we're not sure what the formula for competition is. Today, we say it's not a new phenomenon. In fact, it's changing to a more commercial-like phenomenon, because fewer and fewer people want the stuff without support and intellectual-property indemnification--that sort of thing. We know how we are competing, and it's working. We just have to keep running the same playbook hard.

You mention intellectual property. What's going on in terms of Microsoft IP showing up in Linux? And what are you going to do about it?

Well, I think there are experts who claim Linux violates our intellectual property. I'm not going to comment. But to the degree that that's the case, of course we owe it to our shareholders to have a strategy. And when there is something interesting to say, you'll be the first to hear it.