icrosoft announced yesterday that it would allow its industry partners to modify and then redistribute the underlying programming code used in cellphones, hand-held computers, television set-top boxes and other small devices.

The new policy does not apply to Microsoft's mainstay products in personal computer desktop software and data-serving software that runs computer networks.

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Yet the new licensing program, analysts say, is a significant step in opening up Microsoft's intellectual property to outsiders in a way that would have been unthinkable a few years ago. It shows, they say, that even Microsoft must respond, at least in markets it does not dominate, to the changed attitudes and practices in the software industry prompted by the rise of "open source" software — software developed by programmers who distribute the code without charge and then cooperatively debug, modify and add improvements to the software.

Microsoft, to be sure, does not embrace the open source formula as a way of doing business. But the company is selectively borrowing some of the open source practices for the way it develops software. It is doing so mainly in response to the growing popularity of the best-known open source project, the GNU Linux operating system, a competitor to Microsoft's Windows. Microsoft rivals like I.B.M. and Oracle are promoting Linux.

Microsoft calls its approach the Shared Source Initiative, which it began nearly two years ago.

"Microsoft has really made an effort to listen to its customers more and be more open in response to the open source movement," said Tim O'Reilly, president of O'Reilly & Associates, a publisher of computer books and an advocate of open source software. "Open source is having an impact across the industry."

Under its shared source program, Microsoft has permitted researchers, industry partners and governments to view and sometimes even modify the company's source code. Academics, for example, can look at and modify Microsoft's code and publish the results for research purposes. In January, Microsoft announced that it would allow most governments to study the underlying code of its Windows operating systems and plug in their own security features instead of Microsoft's technology.

But the new licensing program for Windows CE, Microsoft's operating system for mobile and other devices, will allow manufacturers, chip makers and others to have full access to the source code, modify it and then distribute versions of Windows CE with added features for their own commercial advantage. The outside companies, under the rules of the new program, then have exclusive rights to changes they made for at least six months. After six months, they may license the technology back to Microsoft or not. Chip makers, for example, might well see an advantage in adding to the CE operating system to steer an industry standard. But a cellphone maker, for example, might well keep its innovations for itself to give it a feature that rival phone makers lack.

The companies that have already signed up for the program include the chip makers ARM and MIPS Technologies, a few large East Asian electronics companies like Hitachi, Mitsubishi Electric and Samsung Electronics, and the systems integrator bSQUARE.

Steady advances in chip speeds and miniaturization have enabled manufacturers to begin putting more computing power in smaller devices. It is a broad market that includes so-called computing appliances and embedded devices, all of which need operating system software. Microsoft is just one of several companies in this software market, with competitors offering versions of Linux, and software from Wind River, Palm and others.

The producers of small computing devices want the freedom to tailor the look and operation of their offerings — changes that require tinkering with the operating system. "This marketplace is so broad and these devices are so unique," explained Keith White, senior director of Microsoft's appliance and embedded platforms group. "There is not so much of a standard as there is in PC's. This licensing program gives a lot of flexibility to our industry partners, so they can put more innovation into devices."