Open-source will kill the software market, according to a confused Microsoft official. Engineer Jim Gray asked an audience yesterday how the software industry could survive if users got software for free.

"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 panellist over the effects of open-source technology. He was speaking at a US software development conference on software trends, XML, Web services and grids. In short, what's the business model in an open-source world?

In response to a question about the effect of open-source on standards development, panellist Daniela Florescu, a 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 hasn't been responsible for standards development. "I don't think any of those specifications were written by any of the open-source community," he said. He even dared cite Microsoft rival Sun as a company that has developed standards while stressing that 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."

An audience member asked if software companies could instead compete on the basis of their service models. "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 panellist from Oracle acknowledged that the database company couldn't compete with an open-source vendor such as AB MySQL on price. However, Oracle standards architect Jim Melton said the company would compete very well with open-source products by emphasising functions such as scalability, high performance and huge databases. "I also think the open-source databases will pursue [features] in the same manner," Melton said, but noted that Oracle has a "10-year headstart". The Oracle database as well as Microsoft SQL Server and IBM DB2 will continue to compete effectively, he said.

A product release last Friday by MySQL confirmed 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 has been the company's forte.