As Microsoft's fiscal 2004 kicks into full swing, the Redmond software company is continuing to hone its organizational structure.

One change likely to be announced soon is the merger of Microsoft's U.S. government operations with its education services business, according to one Microsoft vice president.

"We are increasing our staff across EMEA (Europe, Middle East and Africa) and to integrate government and education. The goal is to do something similar in the U.S.," said Pete Hayes, vice president, public sector, for Microsoft EMEA.

(Until May 1, Hayes had been the head of Microsoft's U.S. government business.)

The newly merged business will likely be known as Microsoft's U.S. public sector unit, as is Hayes' unified government-education unit overseas.

Microsoft's expected move to combine government and education comes at an interesting time.

"We ... see Linux being heavily used in the academic environment and increasingly being evaluated by government, particularly overseas," acknowledged Microsoft chief financial officer John Connors in an investment conference speech in June. "In certain geographies of the world there is a notion — we think misguided — that you build a software industry on things that are free. That's not likely to happen in our view from an economic perspective, but that is a view in certain geographies that we're working hard to get the story out about how the commercial software industry works.

"But Linux is replacing UNIX, and Linux and Windows are the only two platforms that are growing in terms of units and share of the market," Connors noted.

Indeed, an increasing number of foreign governments are evaluating and switching to open-source alternatives. And there have been Linux and open source backers in this country pushing for government procurement guidelines that would favor, if not outright mandate, Linux and open source. (Bills and/or hearings have cropped up in Oregon, Texas, Oklahoma and Rhode Island as of late on this topic.)

To compete, Microsoft needs to circle the wagons "to insure a level playing field (vs. Linux) in terms of procurement," said Hayes.

The best thing that the government sector can do to combat Linux is "to present the value of Microsoft products," Hayes continues. To that end, Microsoft's government business is engaged in a number of government-specific total-cost-of-ownership (TCO) studies that will pit Windows against Linux, he says. These will be similar to the Microsoft-sponsored International Data Corp. TCO study from late last year that found Windows to best Linux in a variety of business scenarios.

Microsoft has completed some of these type of federal TCO studies, but as yet does not have the consent of its customers to release the results, Hayes says.

Microsoft does well in selling to federal, state and local governments. Its U.S. government subsidiary routinely contributes an estimated 15 percent to 20 percent of Microsoft's total sales. The U.S. government business consists of 450 direct sales and marketing employees, plus an additional 150 product-support and telesales associates.

In the government space, Microsoft sells primarily through reseller and integrator partners, as well as off the GSA schedule.