The Chronicle: Colloquy Live Transcript

To Lease or to Buy? Microsoft's New Pricing Policy

Thursday, April 18, at 1 p.m. U.S. Eastern time

Does Microsoft's new pricing policy for licensing make it more advantageous for colleges to lease or buy rights to the company's software? How can colleges determine what the best deal is?

New licensing plans offered by Microsoft are changing the factors many colleges must consider in deciding how to pay for the rights to software they need. The new plans include some options for perpetual rights and others that involve annual leasing deals. Some experts on campus computing see significant savings in the one-year leases, but others fear that colleges may be losing their ability to change software down the road, because some of the lease provisions make it difficult for colleges to sever their ties to Microsoft.

» Change in Microsoft's Licensing Prices Attracts Some Colleges and Worries Others (4/19/2002)

Larry Toy is president of the Foundation for California Community Colleges, which administers collegebuys.org, a nationwide purchasing cooperative. In that capacity, he is responsible for administering or sponsoring Microsoft Campus Agreement licenses for about 300 colleges and universities nationally. Previously, he served as director of system advancement and resource development for the chancellor's office of the California Community Colleges and spent 28 years as a professor of astronomy at Chabot College in Hayward, Calif. He will respond to questions and comments about these issues on Thursday, April 18, at 1 p.m. U.S. Eastern time. Advance questions are encouraged and may be posted now.

A transcript of the chat follows.

Vincent Kiernan (Moderator):
Good day. I'm Vincent Kiernan, a senior editor here at The Chronicle, and I'll be moderating today's chat about Microsoft's approach to selling software to colleges.

Our guest is Larry Toy, president of the Foundation for California Community Colleges, which administers collegebuys.org, a nationwide purchasing cooperative. He will be taking your questions for the next hour or so.

Thanks for joining us today, Mr. Toy.

Larry Toy:
Hello, I'll be answering questions for this Colloquy Live. I am the president of the Foundation for California Community Colleges and collegebuys.org. We are a non-profit 501(c)(3) corporation and the official auxiliary foundation for the California Community College System. We have the largest cooperative purchase program in the nation with over 1800 participating colleges and universities. Microsoft is our largest vendor and we currently manage MS Campus Agreements for 300 colleges nationwide, about 40% community colleges and 60% independent colleges and universities in 19 states, mostly in 15 different consortia. Our own consortium for the California Community Colleges has 104 of our 108 colleges participating and is the largest MS CA in the nation with over 50,000 faculty and staff FTE. More details about our consortium can be found at http://www.collegebuys.org

Vincent Kiernan (Moderator):
We'll start with a few questions that were submitted in advance.

Question from Anonymous:
In a recent conversation with the Microsoft Higher Ed. rep. they told me outright that if my institution did not renew our Campus Agreement, they would come out and audit every computer on campus and charge us with any license violations. That, to me, was significant presure to stay with Microsoft. Is this a common Microsoft attitude and do other institutions feel this pressure, too?

Larry Toy:
We have attended many MS briefings and deal with almost all of the regional Higher Ed reps as well as those based in Redmond. We haven't experienced those kinds of statements. Clearly MS wants you to continue your agreement. However, in the most recent revisions- CA 3.0, they have actually made it easier to exit a Campus Agreement than before. It still isn't easy and the exit rate as far as I have heard is almost nil.

Vincent Kiernan (Moderator):
Because the preceding question was submitted in advance, we decided to ask Microsoft for their response as well. A PR person provided the following written response, attributed to Andrea Tanner, license-compliance manager for Microsoft's education group:

"Microsoft does not audit customers to ensure their compliance. We trust our education customers and know they are trying to do right with their software licenses. We work in partnership with them to ensure that their licenses are in compliance with their agreements. Appropriate licensing of software is an important process for colleges and universities and we want our customers to look to us as a helpful resource in this process.

"We do know of one or two campuses that decided to opt out of the Campus Agreement to go with an Academic Open or Select arrangement. It was because the Campus Agreement wasn't the best fit for their technology needs. The technology needs of an institution change over time.

"In the event that a school decides to exit a subscription program like Campus Agreement, we work with them to understand the reason behind their decision. It may be a budgeting issue or it may be a review of their technology needs. We help them identify and migrate to the licensing solution that best meet their needs and helps them to remain compliant.

"Our Campus Agreement is not always be the best solution for colleges and universities. That's why we're committed to providing our customers with a variety of licensing options, and working with them to determine which licensing arrangements best suit their needs."

Question from Richard Bazile, Chicago State Univ:
I understand MS has several packages they offer. Does either one allow for the University to lease the software but allow students to license? I believe this is much more flexible. Students, who in the past were allowed the license offer, are still given this oppritunity with this.

Larry Toy:
The Campus Agreement 3.0 allows an institution to pick and choose from a large variety of the MS product line (no server licenses are included however). For student use on their own computers there is a student option that the institution can provide at extra cost per FTE Student. It is an annual license that must be renewed - just like the standard part of the CA. Again there is some choice. However, the institution must provide some distribution mechanism and purchase the CD's which are specially manufactured by Logistixs for MS and have the registration wizard. We do the distribution for about 10 colleges who currently have chosen the student option. The vast majority have not, though the numbers are increasing. All students in an institution must be licensed. They have perpetual rights to that software once they graduate. There is a new program called student select that is currently in pilot that allows students to buy the license and media if the school is under a campus agreement and I believe also needs to be under a MS Select license. We are starting a pilot shortly with some of our schools. Then there is no expenditure for the school for the student licenses - and not all students have to participate. They are also buying a perpetual license. If a MS rep is on this, they may want to comment on the status of the student select program.

Question from Roget duBois, Big 10 university:
Given that even our computer operating systems may eventually be made available on a 'for lease only' basis, how can anyone begin now to protect themselves from monopolistic pricing in the future?

Larry Toy:
Currently, for PC's - the dominant solutions are clearly MS based. I don't see that changing in the near or mid term future. For most institutions, a Linux OS is a high risk option - and Higher Ed generally avoids risk. For an institution the Mac platform is an alternative that avoids the Windows OS issue - though again the MS Office solution is becoming more dominant in the mixed PC/Mac environment. For the longer term, PDA's or other technology may replace the PC and clearly there MS OS/Office is not dominant.

Another approach that I see in its infancy is MS's gain if they really see higher education as a true partner - so it becomes a win-win (sorry about that) situation to maintain low pricing for higher education in return for higher ed continuing to provide students, faculty and staff who become life-long customers of MS products. So the "monopoly" may continue to be a "low price" one.

BTW, Tylenol has been very successful in underpricing all competition for the "in hospital" market - thus being able to advertise that they are the choice of hospitals everywhere.

Question from Brian W. Carver, Long Beach City College:
Is our guest speaker aware of schools choosing to avoid the lease/buy from Microsoft issue entirely by opting for open-soure software solutions? How prevalent is this, in his experience? Also, the quotation from Mary Toll in the article gives the impression that StarOffice is incompatible with MS Office file types. This is incorrect. I currently enjoy using OpenOffice, an open-source office suite, and am able to interact seamlessly with MS Office file types. StarOffice is a commercial office suite based on the OpenOffice source code and a quick check of Sun's web site will show that MS Office compatibility is a key feature. In fact, there are now numerous viable methods available to interact with MS applications and file types from open-source operating systems and applications. The cost savings this generates for schools that explore it deserves more attention.

Larry Toy:
I am aware of Star Office (having also an agreement with Sun and sponsoring the Sun Academic Initiative in California.) So far I don't know of any institutions that have adopted Star Office instead of MS Office. Scott McNealy of Sun made the offer at the Community College CIT meeting in 2000 in Anaheim to an audience of 2000 or more. The buzz after the speech was the concern that MS Office is the standard in industry and people didn't want to be training their students on a system that was not what they would use in the world of work. We haven't done much to verify the compatibility of files - though it appears not to be a signficant issue. The learning of two different systems seems to be the major stumbling block. There was also mention of the support issue - is there commitment for long term support and upgrades for a free system?

Vincent Kiernan (Moderator):
If you have been waiting to send in a question for Mr. Toy, now would be a great time to send it along.

Question from Vincent Kiernan:
To what extent are software publishers besides Microsoft also moving into leasing their products? Is this the wave of the future in college computing? Are colleges prepared for it?

Larry Toy:
We currently have agreements with both Adobe and Macromedia which are moving toward the leasing model, but are not yet there. The institution buys a perpetual license, but then can buy an annual or biennial upgrade or maintenance license at a much lower cost - this gives rights to all upgrades and revisions at no additional cost. From that point, as long as the maintenance is paid, no further license payment is required. Other vendors like Blackboard and WebCT have moved to an annual license fee model, mcuh like the MS CA, with no perpetual rights. A recent new vendor for us, Turnitin.com - antiplagiarism serviece adopted an annual model after talks with us. We have been encouraging vendors to move in this direction, since it minimizes the up front large payment for a college and more closely mimics the annual budget cycle for the schools. What is particularly difficult for the colleges is that typical software revisions are not done on a regular cycle and are not announced until shortly before they are released, Colleges have no way of planning their budgets around the revisions.

Question from Jan, residential regional university:
Is the ability of Microsoft to perform licensing audits, to seek penalties for unlicensed use of its software, or to propose campus-wide license arrangements affected in any way by any of the anti-trust suits brought against Microsoft?

Larry Toy:
I'm afraid I don't have the expertise to answer this. I haven't heard anything regarding this from MS or our colleges.

Question from Vincent Kiernan:
As institutions become increasingly virtual -- with faculty members and students at distances from campus and from one another -- how will that affect software licensing decisions by colleges?

Larry Toy:
We are seeing the distance issue coming as very important in many ways. As far as licensing, the MS CA gives work at home rights for faculty and staff which become more important for remotely located faculty. Colleges can also supply computers for their remotely located faculty and if college owned, these computers are covered as if they were on the college campus. For students, the issue of compatibility in software is more and more important. Submitting essays online for example becomes a logistical nightmare if students are using incompatible software - spending a lot of time formatting in Word Perfect and then finding the professor can't convert all the formatting into Word. The Back Office Client Access Licenses are also a major issue for remote, non-university owned computers. Another question refers to that - I'll be answering that next.

Question from Tom, University of St. Thomas:
Microsoft recently informed us that we need [licenses] for every non-university-owned computer that accesses Exchange mailboxes or file services. We've had a Campus Agreement with them for three years now, and this is the FIRST time this issue has come up. Has this happened to other insitutions? Is Microsoft looking to generate some extra revenue or what?

Larry Toy:
The issue of Back office CALS is becoming more important as colleges move toward more student access by the Web, particularly with Exchange and Sequel. There is another licensing option for Sequel and perhaps a MS rep can speak to the Exhange issue - which is processor based and doesn't require CALs. Also the student option may provide the CAL solution - but I need to research that or have the MS rep or others on the chat to tell us. BTW, we are seeing this with our ERP project and the implications of on-line registration with both Oracle concurrent licenses and MS Sequel server - non processor licenses.

Question from Vincent Kiernan:
How difficult is it for a college to switch from leasing back to perpetual licenses, if it wanted to for some reason?

Larry Toy:
It is not difficult, but it is expensive, depending on whether you have old perpetuals that you want to reinvoke or you are swtiching away from MS for applications and/or operating systems. You essentially have to buy perpetual licenses at the MS Select pricing for all the software you want to keep. If this is everything, then the switch will probably cost several times the annual MS CA license. If it is a limited subset, then it can be more reasonable.

Question from Paul Dupree, Asbury College:
Does anyone know of a college or university that has ever terminated their Campus Agreement (lease) with Microsoft? If so, did Microsoft conduct a software audit to verify that everything had been deleted?

Larry Toy:
We had one of the 300 colleges that we do agreements for opt to terminate. As far as I know they were not audited, but received a very clear letter from the MS attorneys explaining their rights and obligations. I have heard that the renewal rate is well over 99%.

Question from Vincent Kiernan:
Do public institutions, because of their connection with state government and their dependency on the state treasury, face any special hurdles or issues in resolving the software-licensing issues?

Larry Toy:
The only issues that we have heard is that in some states the competitive bid laws come into effect. This can be costly to a college, since the cost of doing the bid can wipe out much of the savings. There are also some states that have mandatory use of state contracts which may limit choice of reseller. We deal with about six different resellers in the various agreements that we manage. There is great variability in knowledge and level of service. The CA can be complex to understand in detail. MS staff provides a good backup, but the reseller is the main point of contact for most.

Question from Jim Michael, California State Univesity, Fresno:
On some platforms software leasing/subscription is the predominant licensing strategy. In these environments, the lease allows the acquisition of new versions of software through a small, incremental cost in the lease payments. One of the arguments for this has been that the product cycle is such that leasing actually presents a lower overall cost for the university that purchasing each new version of the software as it becomes available. Do you see the new Microsoft offerings presenting this sort of cost savings as compared to their existing licensing options?

Larry Toy:
SO far we haven't heard that option. Actually, the CA provides the lowest cost option, since the pricing is level- compared with the Adobe CLP or Macromedia VLP, where there is a high up front cost for the initial license.

Question from Vincent Kiernan:
How common is it for alumni purchases to be included in licensing arrangements with Microsoft or other software publishers?

Larry Toy:
I don't know of any programs that allow alumni purchase. The major problem is that the vendors absolutely do not want academic copies used in the non-academic environment - especially the corporate world.

Question from Gary Larson, Pvt Liberal Arts College:
We have approx 600 faculty/staff FTE, the population that we would include in the 3.0 agreement. We're about 85/15 PC/Mac. For purposes of counting units, is MS Office counted as platform independent - in other words, are both Mac and PC users counted as using the same product?

Larry Toy:
All FTE are counted - PC vs Mac is not considered for the CA 3.0. Of course, Office for Mac/Frontpage for Mac are licensed products.

Question from Vincent Kiernan:
Is there any down side for colleges that centralize their software procurement through one lease, rather than permitting departments to purchase whatever they feel that they need?

Larry Toy:
The only downside that we have seen is that for large universities it takes forever for all the departments to agree on anything - let alone software purchases. This has stopped many large institutions in their tracks to moving to an institution wide CA.

Question from S.Morgan, Bowdoin College:
What is the most cost-effective option for small colleges (around 1500 students) that want to offer the MS Office suite to all students, faculty, and staff, as well as to all employees for home use?

Larry Toy:
I think the MS CA with student option is the best. We actually provide the distribution of the work at home CD's for faculty and staff to our 300 colleges and have distributed to over 35,000 faculty and staff nationwide. We also do the same for student CDs, Contact us at stuart@collegebuys.org if you want to work with us.

Question from Anonymous:
Why doesn't the Campus Agreement include server licensing?

Larry Toy:
I don't know - the focus of the CA has always been the desktop/laptop. Obviously, selling server licenses separately brings in a separate revenue stream. Also the widely different use of servers by institution may also make it harder to justify in a site license environment.

Question from Ms. Russell, Lewis & Clark College:
Would you go into more detail of the lease explaining the new prohibition on colleges' providing upgrades of Microsoft operating systems to faculty members for their home computers.

Larry Toy:
In the change over from CA 2.0 to 3.0 the work-at-home rights have been greatly curtailed. Previously (and for all campuses currently on 2.0), Windows upgrades were included. However, with 3.0, only Office XP Pro (or previous versions of Office) are included as well as Back Office CALs. This means that Frontpage, Visual Studio and Publisher 2002(othe older Publisher is OK since it was part of Office 2000 PRo) are no longer licensed. We have just received a special amendment that allows our colleges in California to maintain the upgraded version of Windows that is on the faculty/staff home computers under 3.0, but with no further upgrade included. We will be working with our other colleges to have this in their 3.0 agreements. We understand that MS is rethinking the entire work-at-home issue after having received a plethora of complaints from faculty/staff and institutions (including us). They have told me they didn't realize the extent to which the faculty and staff were using the programs beyond Office. Windows is particularly problematic, since booting up your system automatically gets you into Windows. We hope to get a clarification and better resolution from MS soon.

Vincent Kiernan (Moderator):
That's all the time that we have today. Thanks for joining us, Mr. Toy.

Larry Toy:
Thanks to all of you for participating. I hope this was useful. Please feel free to contact us through our website at www.collegebuys.org or for more details on the MS CA email stuart@collegebuys.org. Thanks again.