Things could hardly be tougher in the Whitehall front line. Last year Gordon Brown made it clear in his budget speech just what he expects – 4% annual growth in spending on front line services financed out of just 2% overall budget growth.

Enacting this latter day miracle of loaves and fishes is not going to be easy. But it will not happen at all unless Whitehall ends its chronic failure to use market power to deliver sustainable savings in the massive bill the public sector pays for software.

Nowhere else would departments or their agencies tolerate a monopoly or a monoculture. Imagine if every department decided, as policy, to buy its hardware from the same supplier. Of course innovation wouldn’t stop – improvements in manufacturing and the fundamental laws of physics would see to that. But the pace would slow – what’s the incentive if the buyer is locked in? – and the price would rocket.

And that is exactly where we are with software.

Whitehall needs to apply the lessons it has learnt everywhere else – not just that markets drive down cost and improve quality but that sustaining markets requires active fostering with regular deal flow and sufficient encouragement to the supplier community to keep stepping up to the wicket to compete for the work.

We do not expect proprietary software to disappear from the public sector. We don’t even expect, in the short to medium term at least, that there will be a massive shift away from current suppliers to a more heterogeneous world. But we do think that unless Whitehall acts to create a mixed market in software supply then long term savings will be impossible to deliver.

The open source business model is a different one from the proprietary model that currently dominates. And we think those differences mean even a relatively small use of open source will drive big changes that benefit purchasers and ultimately the public.

The key insight of the open source model is that the software you use should be yours to control and customise. It’s not a new concept: the internet depends on open source to direct you to the site you want to see. And the TCP/IP protocols that carry almost all network traffic – whether on the internet or not - have driven out proprietary alternatives not because of heavy handed marketing or the famous “fear, uncertainty and doubt” beloved of computer salesmen of old, but precisely because they are open and so strengthened by peer review.

That openness means that there is a common interest in driving improvements and innovation, making software more reliable, more robust and even simpler to use. And open source is big business: the Linux operating system, at the core of so many open source projects, might have been started in the bedroom of a Finnish student, but today it is at the heart of a multi-billion dollar industry that is revolutionising the way IT works.

We have already seen this in the private sector. Moving to new software solutions based on the open source business model is saving Specsavers, Europe's fastest growing opticians group, hundreds of thousands of pounds a year in licensing alone. Yes, there are costs of transition from one set of software to another, but they are broadly comparable to the familiar cycle of software upgrades that proprietary users have to face every two to five years. The difference is that open source delivers year on year savings once we've got over the hump of the software upgrade.

Bringing those benefits to the public sector might require some people to take what seem like counter-intuitive decisions. The first thing that the big proprietary software firms do when they hear a government department are considering opting for a more diverse range of software suppliers is pitch up at their door offering big discounts.

These tactics have worked well for the proprietary software sellers. Britain only ranks sixth amongst public sector users of open source in the EU. Yet few would claim that means we have better quality IT infrastructure or a better record of delivering IT-led service transformation.

But, like the offers in the summer sales, the discounts offered one day are recouped by mark-ups sought at a later date and, particularly when the purchasers are big central departments, purchasing decisions need to be made in the general interest of the taxpayer, not simply on the basis of who is offering the cheapest price on that one day.

And the supplier lock-in does more than keep costs high, it stifles innovation. Ten years ago the “browser wars” were big news in IT – with two proprietary solutions – Netscape Navigator and Internet Explorer – battling it out to be the desktop gateway to the web. Internet Explorer – offered at the ultimate discount of the ‘free’ download (of course the costs were bundled into the cost of the operating system licence) – eventually crushed Netscape. But with the competition gone, the browser technology stagnated, with the only updates being the endless security patches designed to beat the growing army of ‘blackhats’ trying to hijack our machines.

But then, just not even three years ago, version 1.0 of the open source son of Navigator, Firefox, was released. Suddenly, competition kicked in as open source developers brought their expertise to the browser project. Today as much as a quarter of the world’s internet browsers are using Firefox and while Internet Explorer remains the default choice for most of us, it has radically improved as its developers face up to a struggle to keep market share.

The lesson is that the only way to deliver long term cost savings and sustainable quality improvements will be to actively sponsor some bio-diversity in the software world. A few years ago that could quite easily have been done though the use of proprietary software – in word processors think of Wordstar, AmiPro and Wordperfect – but that option has largely gone: only open source has had the strength to resist the monopoly.

We have been able to resist because we have been able to demonstrate quality. Two key aspects of the open source philosophy – that in general a piece of software should do just one thing but do it well and that individual pieces of software should be designed to work together through the use of open and extensible data formats – means that open source software now dominates the backbone of the internet.

Whitehall is often criticised for its aversion to risk as oppose to its willingness to manage it. Switching to a mixed market for software may strike some as a risk too far. Yet at the same time we work in a world where the Internet is taken to be a given, not just at the “five nines” level of reliability but always there, always on. That constancy is a token of open source, open protocols and open data. It is time these came to the public sector.

The 20th February 2008 was one of those 'Microsoft moments', when suddenly, the world changed. Just like when they 'got' the network (and we got NT), or they 'got' the Internet (and we got 'Internet Explorer'). This time they 'got' Open Source and Open Standards and the company is about to make another of their legendary radical transformations... or so they would like you to believe.

The pattern of these 'Microsoft moments' is revealing. Each previous one has come long after most of the rest of the technology world has seen the latest change as inevitable - a situation that with Open Source and Open Standards has been staring us in the face for a long time now.

So does Microsoft's conversion signal the final phase of the ascendancy of Open Source, Open Standards?

Let's look a little closer.

The Microsoft model, as they are explaining it, is becoming asymptotic to the Open Source one. Interoperability, access to the code, free tools for developers and students, open international standards validated by standards bodies. It certainly looks like it, but an asymptotic curve never quite reaches the line.

The good news is that it is an implicit acknowledgement that the way technology is done has irrevocably changed. Their track record shows unequivocally that they will sooner or later adapt to the inevitable. But the real Open Source business model is so alien, so diametrically opposed to the fundamental business model Microsoft has pursued for decades, we must ask if there are alternative explanations, and what the real game-plan is?

Let's put to one side the obvious observation that Microsoft's legal woes in the EU and around the world provide a powerful incentive to make it appear they have changed their ways. And let's do the same with the observation that the critical ISO vote on the fate of their rival office document standard, the cornerstone of the desktop monopoly, is imminent - too obvious, too superficial. Microsoft is far too subtle a tactician to leave it at that.

Open Source and Open Standards have created a potent, compelling, ever-expanding commons of powerful software. A complete, freely- available 'stack' that can be implemented at low cost by companies from one-man bands to Global giants. A commons owned by none and owned by all. It is the secret ingredient of a whole new generation of businesses, and canny adopters from the previous generation. Google is not the only 'poster child' to have realised the supply- side benefits of running their operation on Free Software. And the economic and financial benefits, some would the least of the many benefits, accrue mainly to the users of Open Source software.

Historically, the economic benefits of a commons has primarily benefited the users. Of course the physical commons has always been subject to the so-called 'tragedy of the commons'*. The laws of physics, fortunately, do not apply to the world of ideas (and by extension, software). If I share a good idea, we both benefit, and the idea itself remains undiminished and inexhaustible.

Also historically, the exploitation of the commons to make a few fantastically rich and the rest of us merely 'consumers and customers' has been accomplished by enclosure.

The last significant 'enclosure of the commons' began in England, and enabled the Industrial Revolution. Whilst critics have called it 'the revolution of the rich against the poor', many would concede it also provided many benefits, and many that 'trickled down' to all. This may well be correct, but it is beside the point. Physical commons are finite and exhaustible. Ideas and software are not. The marginal cost of duplicating software is, well, negligible, a phenomenon visibly vexing the considerable talents of the record labels and lawyers of the music industry.

Without enclosure, the inevitable consequence of Open Source and Open Standards will be to drive the cost of software right down close to the marginal cost of replicating it. In economic terms, this is a good thing. A functioning free market is meant to drive down costs and benefit the consumers of a good or service. Open Source, Open Standards is quintessentially free market by nature, and extremely good for competition. Incidentally, it also turns IT into a services business.

So how would one 'enclose the software commons'?

1. Software Patents.
2. Own the standards.
3. Define the terms of the 'game'.

Open Source draws a distinction between 'proprietary' and 'non- proprietary'.

Microsoft attempts to draw a distinction between 'commercial' and 'non-commercial' and seeks to confuse the proprietary/non-proprietary distinction by ignoring it. Ingenuous as well as faintly patronising.

Run the latest announcements through the Open Source filters and the game becomes transparent.

Microsoft has accepted that the rise of 'Open Source' and 'Open Standards' is inevitable. If the authentic version is accepted, monopoly rents will no longer accrue to a single provider, and financial benefits will accrue, heaven forbid!, to the customer. This is simply unacceptable to their long-established business model. The only solution will be to define the game in terms that allows the monopoly to survive. The monopoly is not in the software, it is in the rent from the usage of the software. By enclosing the commons (think of the patent deals with Novell, Xandros and others), by owning the standards, and by defining which 'Open Source' products you are allowed to buy and which you aren't, Microsoft can suddenly make the transition to the new world. Patent Encumbrance. Faux 'standards'. Control the terminology and hence the 'game'.

The enclosure of the commons will proceed by creating a group 'inside the ring-fence' and leaving the rest 'outside'. Those inside will pay, how shall we say it, 'protection' money. If you buy from those 'outside'... well let's just say nasty things happen to people who don't pay.

So you can have your 'Open Source' software if you really insist... just so long as you pay a royalty to Microsoft for every copy that gets shipped. It's great if all those 'non-commercial' people want to develop software for Microsoft and their ring-fenced group of 'authorised' 'Open Source' partners. They generously promise that they wont even sue their unpaid workforce.

And what do you lose?

Just this. In the commons that exists right now, today, the economic and financial benefits accrue mainly to you. In the enclosed commons, they accrue mainly to the supplier that holds the patents and the standards. Business as usual. Checkmate. On the bright side, Microsoft get to keep their margins, and you didn't want to improve yours anyway, did you?

* Note: The 'Tragedy of the commons', in plain English, is simply this: If you and I are free to graze our cattle on a patch of common land, we will rush to make sure our cattle graze it first. The stampede will cause the land to degenerate into a sea of mud. Apologists for rich landowners used this argument to show how the enclosure of the physical commons was 'good for us'.