Desktop Linux doesn't seem to keep Microsoft Chairman Bill Gates awake at night. But it should - the same way that Linux on the server gives Microsoft brass nightmares - claims Michael Robertson.

Robertson is the CEO of Lindows.com, the company that's selling dirt-cheap Linux PCs in Wal-Marts. (And the company that will meet Microsoft in court in December to fight for the right to its "Lindows" trademark.)

This week, the "Open Source for National and Local eGovernment Programs" confab hits Washington, D.C. While Robertson isn't slated to present, Microsoft is -- on its shared source initiative. What concerns Microsoft so about Linux? What should the Redmond juggernaut be worrying about? Microsoft Watch queried Robertson on these very topics.

MS WATCH: Microsoft owns 90+ percent of the desktop Windows and Windows-based office suite markets. They have cornered these markets through OEM and volume licensing deals. What real hope is there for you to penetrate here?

Robertson: It's a question of economics, namely LindowsOS offers much greater economics. Thanks to StarOffice, we can offer file-level compatibility with .doc, .xls and .ppt files for one-fourth or less of the price for Microsoft Office. In a time when people are carefully watching their spending, that type of savings is a real boon and matters to the majority of people.

MS WATCH: MS seems afraid of Linux on the server, but not of Linux on the desktop. Why should they be?

Robertson: Linux has one major advantage-cost. Cost is the most important decision for every purchasing decision. Microsoft has 15,000 people in their Microsoft Windows division. I have 50 in my entire company. Consequently, I'm going to be able to offer products at a tiny fraction of their costs because my overhead is so much smaller. This gives me a significant built in pricing advantage.

In every market, there is room for a low cost leader and that's what Linux will do-grab 25 percent of the value conscience buyers. There's not an unregulated market you can't point to that doesn't have a low cost provider who accounts for a significant portion of the business. It's been slow coming to the PC business because of Microsoft's well-documented tactics, but it is coming.

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MS WATCH: Do you think the retail channel is a channel Microsoft has underexploited for Windows and Office?

Robertson: I wouldn't say that the retail channel is underexploited. What I would say is that there is room for companies to identify market needs and better suit them then the one-size-fits-all Microsoft Windows XP. Having one product that consumers are forced to buy is good for a monopoly because it maximizes profits, but it's not ideal for consumers. Let me explain with an illustration.

There was a time when all you could buy were white tennis shoes. There were no other athletic shoes that people could choose from regardless of your intended activity. But entrepreneurial-minded companies decides to start identify specific areas where they could design a shoe to better serve a particular type of customer. Voila: Nike was born by identifying needs of the running community and tailoring the product to them. Today, walk into a shoe store and you'll see hundreds of models of shoes (hiking, jogging, cross-trainer, tennis, basketball, men's, women's, etc.).

Every market over time specializes as it adapts to market segments' needs. There's tremendous room for innovation in the PC market. We announced the Family Computer recently. The Family Computer is an example of the desktop Linux business identifying a need and offering a product to serve it. We envision much more specialization in the form of PCs designed for specific markets as competition is reinvigorated in the PC business.

MS WATCH: MS also is working to figure out a way to even further corner the desktop market via subscription-licensing deals like Software Assurance. Do you see this as something you also want to exploit?

Robertson: We're about choice and lower costs. Microsoft is about locking their customers into longer contracts with higher costs to try and get more milk out of the same cow. Consumers aren't stupid. They know they're being extorted to sign up for these programs, but there's been little choice. Desktop Linux now gives them real choice.

MS WATCH: Lindows.com has been dinged publicly for trying to control the agenda for the recent Desktop Linux Summit. What is your response to this criticism?

Robertson: The Linux community is great at stirring up controversy over any issue. We had great attendance numbers and had a wide range of exhibitors, including Sun, Earthlink, ATI, Via, Epson, SUSE, etc.

It's clear there's a real thirst for knowledge and choice. That's what we're trying to bring to the PC business.