Is Microsoft now facing the prospect of a mass defection in Russia?
Last year Microsoft was faced with the threat of Moscow replacing Outlook on 600,000 PCs, as Russian laws designed to boost domestic software began to bite.
Since June 2015, government organizations in Russia have been obliged to favor Russian-owned software and services over foreign-produced alternatives.
The decision by Moscow City Hall was perhaps the most high-profile switch by a Russian administration, but is it the first of many? Is Microsoft now facing the prospect of a mass defection in Russia?
The Russian company whose MyMail software is replacing Outlook in Moscow is keen to highlight the new contracts it's won with state bodies, in addition to Moscow.
"Currently we have several ongoing it-projects and contracts in the public sector," said a spokeswoman for New Cloud Technologies (NCT).
Key among these wins are Russia's Ministry of Telecoms and Mass Communication buying 300 full product licences of NCT's MyOffice suite, which includes business apps and mail, and the state-owned Rostelecom buying several thousand MyOffice suite licences. She also highlighted a deal with the Russian Ministry of Emergency Situations.
"We also have various smaller contracts and expect more in 2017," she said.
However, NCT was unable to provide more detail on these new contracts and to what extent they will replace deals with Microsoft.
The Russian federal law itself is clear: when a state organization buys software or services they must first try to source it from a list of approved Russian vendors. These vendors must be at least 50% owned by a Russian company, with a commission of government officials and industry executives choosing which firms make it onto the list. State-owned companies have also been instructed to prioritize the use of Russian software and services.
An empty threat
Petr Gorodetskiy, senior research analyst at Gartner, is skeptical about drawing too many conclusions based on Moscow's shift to MyMail.
"They had a significant public relations campaign, claiming that they have enough power and resources to replace Microsoft in the public sector," he said.
"But, for now, this is just public relations, rather than some significant shift in this area."
The numbers at the time the move was announced were relatively small. Moscow had committed to moving only 6,000 PCs from Outlook to MyMail, with the possibility of moving 600,000 machines at a later date.
Microsoft is also still winning major contracts in Russia. At the end of last year, it was revealed that state-owned Rostelecom had signed a contract with Microsoft to spend 1.26 billion rubles ($21.3m) to buy more than 133,000 licences covering a range of software and services, including Windows 8 Pro, Exchange Server 2013, Project Server and Lync Server 2013.
"Microsoft has a significant footprint and this contract with Rostelecom this is further proof that Microsoft still has significant power in our country," said Gorodetskiy, who added that Microsoft was not alone in continuing to win contracts with government, in spite of the legal obligation on the state to favor Russian alternatives.
"In 2015 and 2016 the state and state-owned companies spent millions of dollars on imported software by Microsoft, by Autodesk, by Symantec, there are many purchases of software provided by foreign vendors.
"I think it's too early to talk about replacement of foreign vendors."
Government bodies and state-owned organizations are able to buy foreign software and services where none of the Russian vendors on the register can provide an alternative of the same quality. Part of the reason the law may not be boosting Russian software and services as much as originally hoped are the lack of suitable Russian substitutes said Gorodetskiy.
"Why is Microsoft still successful? Microsoft has a significant footprint in the public sector. There are still no visible alternatives to its products," he said.
"The law itself is poorly implemented. The companies that are included on the register are not competitive."
The lack of suitable alternatives isn't helped by controversies over how firms earn their place on the register, said Gorodetskiy, with some Russian firms alleging they have been unfairly left off the list.
The long-term view
Valentin Makarov, president of the Russian software association Russoft, says that on paper, Russian software is available that can replace foreign-made alternatives.
"Generally speaking, there are Russian solutions in every sphere of software applications," he said.
"In business software, there is a full-stack of open-source solutions and Russian private software, where the stack can completely replace existing business software produced by Microsoft, Oracle etc."
However, he said, it will take several years before the quality of this software is a match for foreign offerings in every area. In particular, he believes that recent moves by the Russian government to help domestic software vendors sell into global markets will drive up quality.
"Without the experience of having thousands and thousands of customers using your software, your software may not be the best," he said.
"For a long time in Russia there was no support for the export of software. Now we have more and more measures, comparable to measures in the west, which may be used by Russian producers to support their move to the global market. If they come to the global market, then the quality of the software will grow very quickly."
While the law's effect on Microsoft's Russian revenues is negligible today, Gorodetskiy said that it had the potential to have an impact in the future, particularly with the government discussing fresh plans to "totally restrict" government bodies from using imported software.
"In the long-term they should consider it as a threat and I'm sure they will prepare certain measures in order to protect themselves."
Microsoft declined to comment.
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