Microsoft gave British government bodies a whopping 50%
discount on corporate prices when in 2004 it negotiated its
three-year deal with theOffice of Government
Commerce(OGC), the UK's public procurement
sheriff.
But it forbade the figure from being published. That was how
much
Microsoft
wanted public market share. Bill Gates played a personal part in
talks with the then Chancellor Gordon Brown. Gates got a
knighthood. Microsoft became the standard for the UK's big
e-government push. It suppressed the only viable alternative to its
monopoly: free software.
Is it safe to assume then that the deal, and that the new
agreement the OGC and Microsoft signed last week, was good for
Britain?
Yes, if you take the OGC's word. In September 2006, the OGC
issued a rare glimpse of its secretive Microsoft terms when it
announced that since the UK had bought its 1.5millionth Microsoft
licence, it had broken a threshold that released better prices. The
deal would now save the public sector £1m a year, it said.
But the OGC didn't want to talk when in June 2008 Microsoft put
prices up 20% because so many public bodies had resigned from the
agreement. They had signed up long enough only to upgrade their
Microsoft software. Neil Dewar, head of ICT at North Somerset,
dropped out of the agreement "two or three years" ago because he
"saw no benefit" in it. "We were paying x-per annum and getting
nothing for it," he says.
So the new deal includes a penalty for dropping out of the
agreement so that it can better perform the trade it was designed
to embody: price against customer lock-in. This is crucial for
Microsoft now alternatives to its software are viable, as has been
demonstrated by open source implementations by Continental
organisations such as French Parliament.
The UK is still hefting the weight of its buying power as a
monopoly basher. It was only in 1999 that the Gershon
Report, on which the OGC was founded, declared "insufficient
aggregation" of public purchasing had allowed gas suppliers to
charge 140% over corporate prices.
Aggregated buying was a mantra of the late 90s new economy
swizzle. The internet made it possible by losing commercial
information from its paper moorings. Prices would be exposed in
such a world. Monopolies would fall. Competitive markets would
thrive. The buyer would be king.
It was in these conditions, and amidst the dotcom bust, when in
2001 Microsoft introduced new, world-wide licence terms that were
controversially to raise public sector prices, even as the OGC was
first applying its aggregated power to Microsoft.
Barely had the OGC opened for business in 2000 than it had it
secured £38m aggregated savings from Vodafone. Hotel fees were cut
similarly in 2001. This "demonstrates what can be achieved," said
the OGC at the time. But hotels and mobiles were both competitive
markets. Microsoft was fighting a US government edict to break up
its monopoly.
The big lock-in debate
Critics of Microsoft's 2001 license terms said they would lock
customers into buying upgrades they didn't need. Customers branded
this a "Windows tax". UK government departments told the National
Audit Office they would increase costs and pressure to upgrade.
When the OGC applied its aggregated buying terms to Microsoft in
February 2002, it claimed it would save £100m over three years;
except it wouldn't, as the NAO revealed in 2003. £74m of the
savings were attributed to "efficiency and productivity savings"
that could arguably be found using any software.
They were 'Alice in Wonderland' numbers, says Eddie Bleasdale,
an open source consultant who has competed fiercely with
Microsoft's public privilege. The OGC had estimated that the public
cost of Microsoft's 2001 licensing change would be between £40m and
£60m. The actual cost saving of the 2002 deal was estimated at
between £31m and £36m.
But we can't be sure. The OGC begged the savings estimate from
Microsoft because the public sector didn't collect the information.
The NAO recommended something be done about it, otherwise the UK
wouldn't know if its software agreements were any good. Sir Peter
Gershon had declared this very same as a mission of the OGC when he
launched it in 1999. A "complete absence" of common measures made
it impossible to assess UK procurements, said his report.
Ten years later, on 21 April 2009, the Treasury's
Operational Efficiency Programme report condemned the
public sector again for having little clue about its IT spend.
"This makes it difficult to establish trends, make comparisons and
manage down costs. What is not measured well, will not be managed
well," it said.
Yet the OEP felt justified in endorsing the OGC's collaborative
IT agreements, suggesting more of them could save the public sector
£6.1bn. It didn't say where it got the number from. But it did make
the first public call in this saga for "much needed
transparency".
Collecting and then benchmarking IT spending data would give the
UK confidence in its procurements by making sure they were "good
value for money" and got "independent scrutiny and
cross-questioning", said the OEP. Newham Council, which became
Microsoft's flagship and the OGC's template when, in 2004, it
signed its own 10-year agreement with Microsoft, had then also
promised benchmarks to assess its own and other public IT spending.
By the time it came to renegotiate its deal last year as part of
wider OGC renegotiations, it had still not developed the
measures.
How could Newham negotiate its new Microsoft terms confidently
without benchmarks? We don't know because it refused to answer
questions about the 2004 deal. Microsoft and the OGC were also
tight-lipped. But in an extraordinary turn of events, transparency
has been written into the new deal. Corporate lawyers are no longer
imposing secrecy on the public purse.
In this spirit, the OGC has already confirmed the talks stalled
over the usual price/lock-in trade-off. The OGC wanted bigger
discounts. Microsoft wanted guaranteed buying volumes. The OGC got
the same discount it agreed in 2002 - a base-level 40%. Microsoft
made another 10 points conditional on enough public bodies signing
up to the agreement before its year-end.
Standardisation and cost savings
After seven years of aggregation, the basic trade-off remains
the same. Public bodies dropped out of the agreement last year for
the same reason they complained about Microsoft's 2001 terms:
because they didn't want to pay for upgrades they didn't need; yet
the UK has agreed terms that give greater rewards to those who
continue paying Microsoft's annual fee under the OGC agreement.
The government has operated on the assumption that this
situation is favourable. Newham justified its 2004 agreement on the
basis that it would be "standardised" on Microsoft, which would
make everything simpler and therefore, in the short run, cheaper.
Likewise, the OEP called last month for "greater standardisation
and simplification of IT systems, desktops, infrastructure and
applications across the public sector". It did not specify how this
would be done, but it has mostly already happened: councils say
they cannot seriously consider open source alternatives to
Microsoft because any other systems they buy are either Microsoft
also, or designed to integrate with Microsoft software.
"Every business application you buy integrates with Word and
Excel. They don't integrate with Open Office yet. It's very
difficult to pull away from Microsoft Office," says David Tidey,
chair of the BCS Elite Group and assistant chief executive at the
Royal Borough of Kensington and Chelsea.
This is evidence of the way Microsoft's desktop monopoly
perpetuates itself, but also how it may be broken. Newham delayed
its planned rollout of Microsoft Vista in 2007 because many
software suppliers hadn't made their software compatible with it.
It had to wait before it could make the upgrade it was paying
Microsoft £470,830-a-year to get.
Though the deal retains without bettering the UK's price for
Microsoft software, it has made some gains that reflect Microsoft's
loosening grip on power. When, in February, the Cabinet Office's
Open Source Action Plan called for the re-use of software licenses,
it nudged Microsoft into agreement with the OGC on that very issue
and cleared a bottleneck in the talks. Yet as open standards are
the crucial way in which the plan will tackle the proprietary
lock-in that sustains Microsoft's monopoly, it is time to reassess
the old trade-off and put the Treasury's priorities in context.
What exactly did the OEP mean by standardisation?