Microsoft's big announcement today about changes in their business practices to "increase the openness of its products and drive greater interoperability, opportunity and choice" is a very public recognition by the company of the seismic shift in the software industry.

While Microsoft still dominates, with over 91 percent of all PCs running Windows, that market share has been very slowly eroding over the past few years. More of a concern, though, has to be the slow adoption rate of Windows Vista by end users; the newest Microsoft operating system is only being used by twelve percent of PC users a year after its release, while 75 percent of users are still using Windows XP. Obviously, the days of launch parties, buyers camping overnight outside computer stores and, most importantly, big profits from the release of an upgraded OS are ancient history. It's so ten years ago.

Today's announcement by CEO Steve Ballmer and Chief Software Architect Ray Ozzie demonstrates Microsoft's need to remain significant in a world where open source software alternatives have gained footholds. Isolation is no longer a viable option; Microsoft had to figure out how to play nice with the little kids before they got big enough to beat them up. And they will continue to grow.

Of course, the press release does acknowledge that Microsoft's hand was forced somewhat by the European Community's Court of First Instance decision in September 2007, requiring the company to improve interoperability of its products. While compliance with the CFI's judgment apparently drove the timing of today's announcement, these were changes Microsoft had to make eventually to keep pace in a changing software development world.

It's the age of the mashup. We've come to expect different software solutions to work together, to have an open API for us to play with. With the details of their "high-volume business products" secreted away behind developer non-disclosure agreements, Microsoft risked being left out of the picture. So now there will be "greater transparency," starting with over thirty thousand pages of documentation being released starting today that were only available to certified developers yesterday.

Microsoft's acknowledgment of the changing reality in its industry is enormous, possibly the biggest single announcement they will make this year (and that includes whatever made Robert Scoble cry last week). While Microsoft had made tentative, and stumbling, efforts to assure the open source community that lawsuits weren't going to come raining down on them in the past, today's announcement has a tone of conciliation and recognition that has been missing. If not exactly a peace agreement, perhaps a level of cordial détente has been reached with today's announcement in Redmond.