A Microsoft official has questioned how the software industry could survive if users are getting software for free through open source.

For-profit software companies will struggle for a business model against free software, said the official, Microsoft Distinguished Engineer Jim Gray. He served on a panel pertaining to software trends, XML, Web services and grids at the Software Development Conference & Expo West 2004 show in California.

"The thing I'm puzzled by is how there will be a software industry if there's open source," Gray said, disagreeing with a fellow panelist over the impacts of open source.

Speaking in response to an audience question about the effect of open source on standards development, panelist Daniela Florescu, senior software engineer at BEA Systems, said implementations of standards such as XML Schema are being taken out of open source movements such as Apache.

But Gray said the open source community has not been responsible for standards development. "I don't think any of those specifications were written by any of the open source community," such as XML, Gray said. He even cited arch-rival Sun Microsystems as a company that has developed standards while stressing he was "puzzled" by Florescu's answer.

"All those companies (developing standards) are selling software," said Gray.

"The key thing is (with) people who are selling their software, the software has to somehow be better than the free software and (if) it's not better, I'm puzzled as to what the business model is because they can't sell it," Gray said.

An audience member asked if software companies could instead compete on their service model. Gray responded, "No, they don't because I think the people in China could do better (with a service model) than the people in America," Gray said.

A panelist from Oracle acknowledged the database company could not compete with an open source vendor such as MySQL on price.

"One place where we could not compete very effectively is (on) price," said Jim Melton, standards architect at Oracle. However, he said Oracle would compete very well with open source products by emphasizing functions such as scalability, high performance and huge databases.

Melton acknowledged, however, "I also think the open source databases will pursue (features) in the same manner," but that Oracle has a "10-year head start" in development.

The Oracle database as well as Microsoft SQL Server and IBM DB2 will continue to compete effectively, Melton said.

A recent product release by MySQL AB confirms that open source companies do intend to compete on features. MySQL announced an open source, clustered database product with high-availability support, called MySQL Cluster. The database is intended for larger applications than what has been MySQL's forte.