Microsoft to Offer Low-Cost Software In Emerging Markets - WSJ.com

This largely takes price out of the equation, when competing with open source in developing countries. 

Microsoft Corp. will start selling $3 software as part of a broader effort to expand personal computer usage in developing countries and deepen Microsoft's ties with governments around the world.

Called Microsoft Student Innovation Suite, the software will be sold to select governments for $3 and be available in the second half of the year. The software includes a stripped-down version of Windows called Windows XP Starter Edition, a consumer version of Office and software for accessing email.

Source: Microsoft to Offer Low-Cost Software In Emerging Markets - WSJ.com