Government looks to abandon use of Microsoft Office to save money

It was announced yesterday that the Government is planning to abandon its use of expensive software such as Microsoft Office (see article in the Guardian here) partly as a way of reducing costs but also as a means of breaking some of the software company's 'oligopolistic' stranglehold on the market.As well as offering an example of Government policy to combat market failure, this story gives us a little insight into the issue of contestability in the software industry.

The first question to ask is why is there such a continuing reliance on Microsoft Office and does this reflect market failure? If the lack of competition leads to unnecessarily high prices then there does appear to be some failure. However, brand loyalty can't be the only factor here - the technology market is notoriously fickle (as Blackberry and Nintendo currently show) - the product must have some residual value to its customers. Indeed, when you look at the alternatives that the Government is looking at (Google Drive and OpenOffice) it is interesting to find that both ensure that you can read Office documents. The Government hope, however, that the lure of procurement money may drive competitors of Microsoft to develop cheaper and more user-friendly software.

This brings us to the issue of contestability. The Government are hoping to use software developed with the 'open source' method - i.e. that individuals are allowed to alter, change and 'add-on' to a core piece of software to ensure that it improves. Open-source software becomes a cheaper method of development than the 'closed' versions kept heavily wrapped up by companies such as Mircosoft and updates and improvements can occur more speedily.

The software industry has often given us good examples of contestability - this may be another showing how the relatively low set-up costs of developers allows for smaller firms to enter the market and begin to genuinely compete with the corporate behemoths like Microsoft. The fact that one of the competitors earmarked by the Government is Google does, however, question the supposition that this is a genuine attempt to break monopolistic behaviour.