SEATTLE (Reuters) - Microsoft Corp. MSFT.O should stop denouncing open source software, such as Linux, and instead stress the benefits of its own products, according to an internal strategy document that was obtained and posted on a Web site for free software advocates.

A spokesman for Microsoft said the company "is not going to comment on leaked or speculated information," although sources close to the company said the document, which was drafted as part of an internal study on how the software giant should meet the threat of open-source software, was genuine.

It makes an exhaustive study of the challenges posed by open source, which is software that can be copied, used and modified freely, unlike Microsoft's software products. The source, or blueprint, of a program determines how it works.

Instead of trying to discredit open source software as a viable alternative to Microsoft's proprietary software, Microsoft should emphasize the costs involved in maintaining open-source software systems, the document said.

Linux, essentially a free version of the proprietary Unix operating system, has been making strong inroads into the market for servers, the machines that manage networks of computers.

Saying that open source software has reached "commercial quality," free software "poses a direct, short-term revenue and platform threat to Microsoft, particularly in the server space," according to the document posted on the Open Source Initiative Web site (http://www.opensource.org/).

Redmond, Washington-based Microsoft dominates the personal computer software market with its Windows operating system, but is a relatively new entrant in the server market. In that area, however, Microsoft, as well as Linux, are gaining market share at the expense of Unix-based servers made by companies such as Sun Microsystems Inc. SUNW. .

Microsoft has argued that maintaining Linux and open source software based systems will end up costing more, since they require the companies that use them to employ software engineers to keep them up-to-date.

Microsoft, with its army programmers, says that its software requires less customer maintenance.

On the other hand, the internal document revealed that Microsoft clearly recognizes that it is up against a large community of software developers committed to seeing open source software become a standard.

"The ability of OSS (open source software) to collect and harness the collective IQ of thousands of individuals across the Internet is simply amazing," the memo observed.

Open source is based on the idea that a group of programmers can share their knowledge to improve software, and thus create a better system that can be used by anyone.

Microsoft, on the other hand, has been a longtime advocate of intellectual property rights for software, although it has recently started to share its source code with others on a limited basis.