Microsoft’s announcement that it will offer 0% financing on many software purchases of as much as $1 million is the sort of creative approach that healthy companies can take to win market share during the economic crisis.

Flush with cash, Microsoft can afford to offer financing at a time when other sources of credit have just about dried up for many businesses. In fact, the financing will cost Microsoft little. Once Microsoft has paid the huge costs for developing software, producing additional copies costs almost nothing, so even if the vast majority of customers defaulted on their 0% financing Microsoft would still come out ahead.

History does include situations where vendor financing went awry. During the Internet bubble, for instance, communications-equipment makers such as Lucent provided financing liberally to startups that wanted to become customers. Once the bubble burst and the startups failed, the communications companies were left holding billions of dollars of bad loans.

Our research also found instances where companies got themselves in trouble offering credit to retail customers. Spiegel, for instance, thought it was diversifying when it gave customers credit cards so they could buy from Spiegel’s catalog and stores. For a time, Spiegel not only propped up its retail sales but also booked healthy profits from its finance arm. But Spiegel was offering credit to people who couldn’t afford it. Eventually, they defaulted in droves. Spiegel’s retail sales plunged, and the company had to go back and reduce the earnings it had booked on its credit cards. The company filed for bankruptcy protection in 2003.

The Spiegel case is the more relevant to Microsoft. While the minimal production costs limit the downside of lending to finance software purchases, Microsoft could be tempted to provide additional financing for services, related hardware, and so on so it can book those software sales. The services and hardware would require risking real, live cash that Microsoft could lose.

If Microsoft can stay disciplined about the customers who deserve credit, though, then the company may be able to win over customers who were on the fence about whether to buy from Microsoft or from a competitor.

Oddly enough, one of the biggest threats to Microsoft has been “freeware” such as Linux, which has undercut the demand for comparable Microsoft products. This time around, Microsoft may be able to take advantage of the power of “free.”