Microsoft NZ's secret government deal
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How do you make a big media splash about saving the government money by “reducing future costs”? Take the following steps:
1. Announce a massive “volume” price hike for spurious reasons. Anything over 30% is good.
2. Negotiate a complex series of bundled licence “deals”.
3. Settle for a smaller price rise; 5%, for example, worked three years ago.
4. Issue a press release headlined “Savings of up to 55% on Microsoft deal.”
5. Profit.
This has been Microsoft's method for the last 12 years in New Zealand and in other jurisdictions.
The terms of Microsoft's generous all-of-government deals are more secret than US President Barack Obama's missile launch codes.
So while the government and Microsoft can congratulate themselves on their commercial acumen, the rest of the industry is left wondering where the value is in having a vendor monopolise the direction and future of government IT.
We don't officially know what the real cost is–although a price hike on the previous deal is almost certain. We don't really know how we compared to other governments.
But if history is any indicator, we probably will emerge worse off than our Australian neighbours.
We do know that, through differential pricing, New Zealand and New Zealanders fair far worse than most other countries in the world, and certainly worse than customers in the USA, when it comes to paying for proprietary software.
In the end, though, it is not the fact that the government has arrived at another expensive arrangement with Microsoft (at a time of austerity and zero budgeting) that should concern us all.
It is that through a complex web of licence models and bundling the government will fail to use alternative technology that is cheaper, better and more appropriate.
The Microsoft deal covers pretty much the entire technology stack. This isn't simply about everyone using Excel for spreadsheets. It covers operating systems, databases, content management systems, document management and more.
Alternative software products exist at each of these layers, without expensive license fees, that are robust, more functional and used in the enterprise and other governments across the globe.
These alternatives ensure that companies like Google and Amazon are able to run massive and complex systems that, in terms of scale and price, put anything that happens in New Zealand to shame.
The DIA and other government agencies are aware of these issues. Open Source platforms such as Drupal and New Zealand's Silverstripe quite deservedly continue to penetrate that sector and are treated seriously when the future of government IT is being considered.
But the Microsoft deal makes it difficult for organisations to unpick the Microsoft tools they don't want to use. Inevitably, CIOs feel obligated to make full use of the stack and the taxpayer wears the cost, even though it makes no economic or technical sense.
As a result, the a lot of government remains locked into 1990s technology. It is the fact that this lock-in is driving current and future thinking that should be of most concern to tax payers and policy makers alike.
It's a wasteful and stagnant result.
Don Christie is on the council of the NZ Open Source Society and is a director of Catalyst IT.
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Comments and questions28
Open Source is your goal, Obvious from this one sided view. TCO of open source is usually (not always) a lot higher than proprietary and you end up with departments going in different directions and the exchange of information more complex, thus rising costs.
[citation needed]
The problem is that open source doesn't get a look in with these secret deal. Meanwhile we have MPs and departments with archaic systems (ie6 anyone?) that don't pass the giggle test, terrible projects like the IRD billion and a haf giveaway that will surely fail all while a ready assortment of companies like Don's who can do work better cheaper faster watch from the sidelines.
I work with both FOSS [free open source software] and Microsoft software daily. I have to say that support is way easier to find support on MS products and get resolution to issues at lot quicker. FOSS, usually means scouring the internet to find some obscure user that had the same issue and then never actually tells you anything. So in initial outlay, sure MS is probably more, but ongoing support will be higher on FOSS. FOSS is not free, it is just free of license fees, but support fees quickly add up.
Hey Don, your editorial seems to be big on FUD but small on fact...
Care to explain exactly why a large NZ Gov owned body can't use whatever software they like?
You _do_ know that the "All Of Government" deals that the DIA and MED have arranged do _not_ compel government owned entities to use the AOG deals, or any of the software covered by AOG... Right?
Gov owned entities are compelled to use _our_ taxpayer money appropriately and effectively. Also, gov entities are encouraged to tender via GETS.
The days of governments spending money, as if it had no value, are long long gone...
Your naivete is staggering!
Enterprise-level support for anything other than the top few FOSS products is non-existent and whilst there might be quite a few small-to-medium FOSS-centric IT service providers in NZ none of them bar Don's company, Catalyst, are reasonably capable of providing the level of service the government would require. Read between those lines if you will.
Um, I happen to know that you're mistaken with your assertion, Mr A.
Anonymous 2: your inability to specify exactly who you are addressing is naivete
I'm addressing the anonymous who posted at 5.41pm who seems to believe that the government is efficient and doesn't waste money.
Irrespective of the merits of open source v Microsoft I think this is an incredibly naive statement. What about the colossal amount of money wasted at IRD and ACC - and let's not forget INCIS ............. All examples of what happens when mindless conformity to inflexible process triumphs over common sense.
Departments may not be forced to follow the AOG deals but it would be a very brave civil servant who didn't do so.
The problem that have been identified with FOSS in government could easily be solved by having a dedicated government IT department working to develop the necessary tools in house and/or using enterprise level companies such as Red Hat.
It's certainly possible and probably desirable to use FOSS products for government. Consider this article from Glyn Moody (http://blogs.computerworlduk.com/open-enterprise/2011/03/why-microsoft-costs-the-world-500-billion-a-year/index.htm)
"That is, open source software typically costs only 10% of the equivalent proprietary products. This isn't about "destroying" wealth, though: customers are left with the other 90% to spend on other things. It is still in the economy, but spent elsewhere.
Applied to IDC's figures for Microsoft, this would imply that the $580 billion revenue might well be replaceable by a tenth of that - let's say $80 billion, to be on the safe side. Which means, of course, that the effective cost of the Microsoft ecosystem to the world in terms of money spent needlessly is around half a trillion dollars."
@Anonymous 2
The government is no less efficient and wasteful than any bureaucratic system. In fact, I'm sure you'll find that they're far more efficient than multi-national corporations due to the simple fact that they can actually be held to account.
@ Anonymous 2 - The IRD and ACC balls ups are due to poor project management and lack of independence.
AOG is the very cheapest price that an AOG vendor is allowed to offer to any party in the country. This is fact.
Also, AOG is available to more than humble civil servants in Wellington.
You, sir, are quite amusing to read.
I'll take that as a compliment.
Draco - I agree that big bureaucracies are inefficient and wasteful: look at Telecom and its track record in IT. I've always found it ironic that they want other companies to trust their IT systems to TEL (Gen-i) whilst they themselves use EDS (or whatever they are called this week).
However ... I don't see a lot of accountability at ACC or IRD.
Are you serious? Really? Re-read this paragraph - it sums up the article pretty well:
"We don't officially know what the real cost is–although a price hike on the previous deal is almost certain. We don't really know how we compared to other governments."
@ Anonymous | Monday, June 18, 2012 - 12:01pm : AOG still guarantees the lowest price in the entire country. You argument is irrelevant.
It doesn't matter if our gov gets a better or worse deal than some other government. All that matters is that the gov is getting a better deal than any other group or individual - You can bet your bottom dollar that if a vendor breached their obligations in this regard, IA would be all over them...
How much do you want to bet? More importantly, how are we going to get the gov't to tell us, the tax payer, how much they're sending off to Redmond each year? You think it's an accident that there's top secrecy around the actual pricing? It's simply so that MS can charge whatever a gov't is desperate enough to pay. By the way, I wonder how likely it is that the gov't would be sued for EULA infringement if it ever decided not to sign up to an AOG deal? Seems like somebody besides the gov't is holding most of the cards.
1. The government are no slouches when it comes to negotiating large AOG deals. This agreement will have a "most preferred customer" clause ensuring that their pricing is always better than every other customer in NZ.
2. The pricing for this deal and those before it will not be that hard to uncover. It wasn't that long ago that some of the previous pricelist spreadsheets could be located via Google. That aside, the pricing is widely distributed within government circles and leaks happen.
3. The prices the government were paying in previous AOG deals were cheaper than other, much larger governments were paying at the time so an upward adjustment was probably inevitable.
4. There have been a few quite large FOSS project disasters within government about which I am sure Don could provide details if requested. In the interests of an open discussion about total ownership cost and local support availability of course.
what a bunch of one sided FUD.
The thing is Don is articles like this do nothing for your credibility. Your already in the minority and all you do with stories like this is cry poor me and give a lot of potential customers many reasons not to look at you, your products or services.
here is a tip for free, try outlining the benefits FOSS could provide, with concrete examples etc etc .. maybe you might get cut through rather than constant whinging and complaining
When governments (and worse, universities) lock themselves into deals with vendors of proprietary software, the TCO cannot be measured merely in dollars and cents. There is also the cost of lost opportunities to fund development for the public good, and invest in the local IT industry, whose employees then spend their money in other local industries.
Government IT spending is, among other things, an investment of public money in future software development. Public money spent on free code software is an investment whose fruits are freely available to the public at large through free licenses like the GPL. Public money spent on Microsoft projects is an investment in a future of Windows 8 loaded onto computers with their BIOS locked so no other OS can be loaded, ever - "imagine a boot stamping on a human face—forever".
Public money spent on free code software goes predominantly to local programmers, and the business which employ them, and stays in the country. Public money spent on proprietary software goes offshore in almost every case, certainly in the case of MS.
Public money spent on free code software supports IT systems driven by non-profit standards bodies. Public money spent on proprietary software supports IT systems driven by private corporations doing their best to sustain a legacy monopoly they never should have been allowed to develop.
TCO of Microsoft products for a small country who may be exporting software development expertise long after peak oil makes it impractical to export food? Very high.
another wonderful post lacking one key point. why is no one actually doing this, and providing practical examples of said cost savings?
If there is such a good business case for Open Source, a viable business for local programmers, and an export market .. why are their no examples of this working?
I guess blaming Microsoft is just an easy way out.
Er, they're doing it all over the world. Consider this: http://www.focus.com/fyi/50-places-linux-running-you-might-not-expect/
Also consider that most websites implemented by gov't in NZ are built on open source platforms like Drupal, Plone, and Silverstripe. Consider that most gov't smartphone purchases worldwide are Android. Our gov't is the exception, not the rule. Look at the Glyn Moody article submitted by another poster above. The main reason big corporate IT companies sell MS to NZ gov't is because NZ gov't doesn't insist on them providing FOSS solutions. That simple. Bottom line is what the corporates are after - they'd be idiots not to take the gov't's money, right? They make more if you include their margins on the MS software licenses than they would simply providing FOSS-related services... at least they do until one of them goes rogue and offers FOSS. Then the rest, unable to compete, have to follow.
Here is a snip from a mailing list discussing this article:
JWP>
Pointy finger of enterprise blame AKA risk indemnification. It is an extension of the IP treaties that support a litigious operating model for software and business support and operations systems.
Small vendors, companies who don't licence directly with ip rights holders are perceived to introduce risk into projects. You and I know this is mostly FUD but conservative BA's just see an externality they can't buy out.
It is our risk obsessed business decision making processes and econocentric view of the world that is to blame for the lack of demand.
DR>> So your saying we need to find a way of making the risk averse CEO's and CIO's see the FLOSS solution as less risk averse as well as being overall more cost effective and thus make it the safer option then continuing to lump up for the proprietary stack.
JWP>Pretty much.
---
Government should be looking to save money, if their existing TCO models really don't point towards the cost savings that FOSS solutions (at least for part of the Desktop Stack) can bring to bear... in these uncertain austere economic times... then we should be sacking those in charge of making the report designs for failing to properly follow procure process.
I think that is basically what Don is trying to say.
I don't know how the regulations are worded in NZ about how AOG pricing works, but in the States, vendors are required to give the best price to the government. Vendors are free to give that same price to other buyers, but nobody can pay _less_ than the Government... but!
Where it gets tricky is *how* you bundle and price things. If I have a bag of a dozen apples and charge $12 for it, I am free to charge $0.50 for a single apple - I'm not selling "the same thing" at a lower price. One thing is an apple, the other thing is a bag of apples.
Back in the 1980s, I worked at a place that sold a hardware/software package plus a support contract. We had two prices for support - monthly (paid in arrears) and annually (paid in advance). If you bought annual support, you paid 10X the monthly amount. Because US purchasing regs do not allow paying for something and receiving it later, we billed all of our governmental customers monthly (12 times a year), but private companies were free to pay monthly (also 12 times a year) or annually (at an effective 20% discount plus less paperwork to deal with). Most private companies paid up front and paid less, *but* because they were different "products", our Governmental customers got "the best price" for the product they bought, but it cost more than a similar product. All customers called up and got the same level of service, same response time, same replacement hardware policy, etc.
I would be very surprised if any large vendor does not also do the same today within whatever purchasing regs they have to work under. They can honestly say "you are getting the best price", but as long as the product selection is rigged to prevent direct comparison, you don't know how much of that is words and how true it really is.
This is exactly why secret agreements with governmental entities are bad. If the pricing agreements were public record for products paid for with public funds, it would be harder to rig the amounts and juggle the system to quietly increase profit margins.
You want vendor lock-in with proprietary products? Fine. Disclose the terms and the amounts so the public can see the deal. Give the paying public a chance to see bad deals.
All those anonymouses making "so why isn't anyone doing it?" seem to be (a) isolated from the IT Industry and (b) allergic to typing "open source cost saving" into Google News. Dozens of new articles every week.
Haters gonna hate.
"The terms of Microsoft's generous all-of-government deals are more secret than US President Barack Obama's missile launch codes."
Though you could maybe argue that the latter isn't much use without the missiles.
I see a bunch of commenters raising the same old FUD about the “lack of enterprise-level support” for Open Source. Listen up, children: “enterprise” folks are big boys and girls, able to take care of themselves. They have in-house IT departments full of seasoned Experts on all this computery stuff. After all, if they can build large, multi-million-line in-house systems using COBOL and JAVA and DB2, how hard can it be for them to figure out how to set up a Python Django installation on an Apache server with a MySQL back-end on a slightly hotted-up Linux kernel? After all, this is code they didn’t have to write, that they can just download and install!
You all seem to know an awful lot about software, and nothing about government...
It's interesting how many of the supporters of commercial software feel the need to hide behind pseudonyms or be anonymous. Kudos to Ethan Dicks for having the intestinal fortitude to put his name to his comments.
I work 9-5 developing closed source commercial software on Windows and choose to have Debian on my home computers (If I worked 9-5 making Debian software I'd probably choose something else for my home computers).
These days and for most applications there really is very little difference between the capabilities of the software available on the different platforms. It's been a very long time since I required an upgrade to a spreadsheet or Word processor to get some new killer function. Like more than 90% of computer users, I don't require more functionality in a spreadsheet or word processor than I had from MS Office 97 in 1998. Current versions of Apache OpenOffice or LibreOffice and Ms Office are jam packed with features that most people will never use.
Ironically the place that Microsoft really shines is their software developer tools. Neither Eclipse nor Netbeans are (in my opinion) 1/2 as good a development environment as Visual Studio. Netbeans comes close, but the lack of compile and continue is so frustrating. On the other hand, neither of the FOSS tools I've mentioned make a habit of arbitrarily dropping functionality between releases.
I really would like to see government justify why they believe any vendor is or isn't capable of meeting all their needs and I don't just mean the Free/Libre vs closed source divide. There are other software vendors beyond Microsoft.