Microsoft Seen As Offering Heavy Hand To Oregon Schools System
April 23rd, 2002

Microsoft's business model is dependent, in part, on an ever-increasing revenue stream. This is in part due to the way it leverages stock options to subsidize its labor costs. For this you need an ever-rising stock, or you lose employees, and for an ever-rising stock, you need an ever-increasing revenue stream. The problem is, where do you go in a maturing industry where you already have 80-90% of the market all wrapped up in big fat gold Monopoly notes? You look to your current customers for more money.

For instance, you can try and dupe your customers into renting your software by the year instead of "buying" it. Microsoft is experimenting with this in Australia and New Zealand, much to the dismay of Microsoft customers in those countries. Microsoft has already forced one Australian charity that was seeking to place donated computers in the hands of low-income kids out of business. They wanted that charity to pay for new software licenses on the 486 and Pentium (I) computers it was doling out. Class act, that was.

You can also re-jigger mass-licensing agreements to your biggest customers, specifically corporate and education buyers. The goal is to get your customers to pay every year or two, whether or not they need to, thereby making your revenue stream more dependable. An article published in yesterday's The Oregonian talks about one such effort under way right now by Microsoft.

Predatory? Monopolistic? Customer-unfriendly? Microsoft? Say it ain't, Joe . . . and Steve and John and Scott and the rest of the computer tech supervisors at the 24 largest school districts in Oregon and Washington.

At the busiest time of the year for those districts, Microsoft is demanding that they conduct an internal software audit to "certify licensing compliance." In a March letter, the software giant gave Portland Public Schools 60 days to inventory its 25,000 computers.

Many also consider the audit requirement a strong-arm tactic to push school districts into Microsoft's costly system-wide licensing agreements.

"Given the fact that the letter came from their marketing department, and included a brochure about their school licensing agreement, this didn't seem terribly subtle to any of us," said Steve Carlson, associate superintendent for information and technology for Beaverton schools.

"I have a more simplistic view," said John Rowlands, director of information services for the Seattle School District: "They just want to squeeze every nickel out of us they can."

The school districts are considered guilty of software piracy until they can prove they're in licensing compliance. If the district can't drum up the staff to manage the inventory, Microsoft is willing to show up with its own audit crew, but if a single computer is found with illegal or undocumented software, the district must pay for the audit.

Ah, but wait. Microsoft has an offer it thinks you can't refuse, if only to avoid the audit: the vaunted Microsoft School Agreement. Under the terms of this agreement, a school or district simply counts its computers and pays Microsoft somewhere in the neighborhood of $42 per machine for one systemwide annual license.

But Microsoft has put a new spin on the agreement, requiring an "institution-wide commitment." That means the district must include in its count not only the PCs, but all the iMacs and Power Macs that might conceivably use Windows software.

The article goes on to talk about how the schools are considering Linux, and how a couple of Linux user groups have offered to wipe all of the donated computers in the district, and put Linux on them. Read the article, it will make you nice and tense, but it's a good read.

I have said this before, but Microsoft is out of touch with reality. The company has lost site of the fact that its job is to provide compelling products that entice its customers to give the company money in exchange for goods and services. Instead, Microsoft looks for ways to compel its customer to give them more money whether or not it has earned it.

The piece quoted above makes a convincing argument for the idea that Microsoft is trying to use the "random" audits to bully schools into signing on to a system where they have to pay the company money, even for the Macs on hand, as well as any computers running Linux! Note that the random audits were conveniently sent to all of the largest school districts in Oregon and Washington:

No one at Microsoft -- and I dialed three different offices -- returned phone calls Friday to explain why the "random" audits targeted the nine largest school districts in Oregon and the 15 largest in Washington. Nor was anyone available to explain why Microsoft failed to notify the two groups chartered to represent the schools in licensing negotiations, the Oregon Educational Technology Consortium and the Washington School Information Processing Cooperative.

Since when are audits handled by the marketing arm of a company? That actually may be standard practice, but if it doesn't scream conflict of interest, I don't know what does. The schools, corporations, and other large institutions have no one but themselves to blame for that, however, as they signed the contracts that allowed for those terms to begin with.

Make no mistake about it, Microsoft is using these sorts of bully-tactics to not only increase its revenues, freeing themselves of the need to make compelling products in the process, it is also leveraging its own power to further that power. Think about it from a school's point of view: "I have to pay US$42 for every computer I have? Well, we might as well put Microsoft's software on it, since we have to pay for it anyway." How the people in charge of this practice in Redmond can sleep at night is beyond me.

Sure, it's a discounted price at US$42 per machine, but it's a fundamentally wrong approach to business as far as ethics and morals are concerned (no doubt there are people lining up to point out that ethics and morals have no part in capitalism, but that's a topic for another editorial). It's also the same sort of treatment the company gave to OEMs that helped land them in trouble with the DoJ to begin with. Microsoft charged PC clone makers a fee for each computer sold, whether or not it had Windows on it. Stopping that vile practice was a side effect of the antitrust trial, but here the company is doing it again. Of course, now there is a Microsoft-friendly administration in power that "prefers innovation to litigation." It will be up to the schools and corporations to "Just Say No to Microsoft" when the company comes calling with these sorts of contracts in hand.

I invite you to participate in the discussion on this issue in our forums.