From the issue dated April 19, 2002
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Change in Microsoft's Licensing Prices Attracts Some Colleges and Worries OthersNew leasing option saves money in the short term but might limit choices laterBy FLORENCE OLSEN Buy or lease? That's the difficult choice facing campus software managers when
On the one hand, colleges can continue to buy Microsoft's products as they have in the past, with licenses that permit the software to be used in perpetuity. Or colleges can elect to cut costs and bureaucratic problems by leasing software for everyone on the campus -- and run the risk that Microsoft could later decide to eliminate those savings by increasing the annual charges. Although the company, which dominates the desktop software market, has offered leases for its products since 1998, recent changes in its terms for both leases and purchases seem designed to encourage leases, and some institutions say they are being pressured into leasing programs from which there is no way out. The leasing program's new prohibition on colleges' providing Microsoft operating system upgrades to faculty members for their home computers is also unpopular. But officials at some of the same colleges also say they like the fact that leasing makes it easier for them to budget for software as an annual operating expense rather than as a one-time capital cost. Microsoft's emphasis on leases is part of an industry trend. Adobe Systems, Apple Computer, Blackboard, Macromedia, WebCT, and other desktop-software companies each offer some form of leasing as well as traditional licensing. That serves to drive campus-computing officials crazy, because each company's license arrangements are filled with different legal minutiae. "Software licensing all around is a nightmare for those of us managing these programs," says Teri O'Rourke, associate director of systems and operations at Southern Oregon University. Because colleges write bigger checks to Microsoft than to any other desktop-software company, officials say, their frustrations with Microsoft are greater. That is especially the case, they say, when the company changes its licensing programs. Annual or Perpetual? Under Microsoft's primary leasing program, called Campus Agreement 3.0, a college can purchase campuswide licenses for current versions of the company's operating system and office-productivity software. The college must make annual payments to Microsoft, but the company charges far less per employee for a lease than it does per computer for a traditional license. Colleges can still buy software the traditional way, with so-called perpetual licenses that give the purchaser the right to run the software indefinitely. Microsoft has two programs for such purchases, called Academic Open 6.0, for purchases in small quantities; and Academic Select 6.0, for volume purchases of perpetual licenses. Many colleges still purchase their software through one of those programs. However, many campus officials say, Microsoft has made the traditional licenses less attractive -- and leases more attractive -- by imposing a steep fee for upgrading desktop software purchased through the perpetual-license programs, equal to 29 percent of the price of an institution's traditional volume licenses. Upgrades are included in the price for Campus Agreement 3.0, Microsoft's primary leasing program. Campus Agreement is Microsoft's fastest-growing licensing program for higher education, says Andrea Tanner, license-compliance manager for the company's education group. About 30 percent of Microsoft's higher-education customers, she says, have switched from perpetual licensing since the company introduced its first software-leasing plan in October 1998. Microsoft prefers the leasing model because revenues from leasing are highly predictable, says Sean Robert Gallagher, an analyst with Eduventures, a consulting group specializing in education businesses. With traditional licensing, the company has no control over how often institutions upgrade their software. Software leasing is gaining acceptance with colleges because most institutions can realize 40-to-60-percent savings over a two-to-three-year period compared with buying traditional volume licenses for Microsoft products, says Larry Toy, president and chief executive officer of the Foundation for California Community Colleges. The foundation administers collegebuys.org, a nationwide purchasing cooperative. Benefits of Leasing Besides savings, campus software managers say leasing offers other benefits. For one thing, it eliminates the prospect of copyright infringement by faculty or staff members who copy Microsoft software, because the lease specifically gives them the right to make such copies. Traditional licenses provide no protection against illegal copying, as Creighton University -- which has purchased only traditional licenses to Microsoft products -- learned recently, when Microsoft asked that the university submit an inventory of its Microsoft software licenses. The company apparently suspected that Creighton had been running Microsoft programs on more machines than it had paid for. Creighton officials say they believe they are in compliance with its license agreement. A campuswide license for upgrades also eliminates many user-support head-aches for technology managers. Their job is made easier, for example, if every department on campus is using the same version of Microsoft software. That is more easily accomplished through a central leasing arrangement than through departments' buying individual licenses to any programs they choose. For officials of Oakland University, such intangible benefits led them to switch to a lease. Maintaining a complex billing system and keeping track of legal software copies under a traditional licensing arrangement were consuming too much of administrators' time, says Theresa Rowe, director of information systems. "The risk was so great for not managing [licenses] correctly," she says. Moreover, Ms. Rowe says, departments at the Michigan college often delayed upgrades when their budgets got tight, which in turn had consequences for the help desk and other services for which the university's central computing group was responsible. Administrative and academic systems projects were being held up because the desktop software in some departments was not up to date. This year, Oakland included $68,000 in its central budget to pay for a one-year's lease for a selection of Microsoft products. If leasing works out, Ms. Rowe says, the university will continue in the Microsoft program and pay for it out of the central budget. "I'm not saying I'm thrilled with it, or that I'm going to want to do it forever, but we're definitely willing to try it right now," she says. What If You Want Out? Indeed, many academic officials have reservations about leasing software. Some cite the difficulty of extricating themselves should they want to. "You really can't get out of it easily," says Mary E. Toll, manager of classroom and computer-lab engineering at the University of Notre Dame. If a college decides not to renew its leasing agreement with Microsoft, it must buy full-price licenses for all of the software involved if it wants to continue using the software, a potentially big one-time expense. For products it doesn't license, the college must remove every piece of Microsoft software that it had installed under the lease agreement. That's the scenario worrying Conrad Dietz, vice president for information technology at Creighton. If he signed a lease with Microsoft, and a budget crunch later on forced him to consider backing out, "we would have to take every single product off every single computer," he says. "We would be left with nothing." Mr. Dietz says that Microsoft has been pressuring the university to lease software for the whole institution, but that so far he has resisted. Microsoft could not be reached for comment. Creighton spends $70,000 to $80,000 a year on the company's products. A site license would cost $30,000 to $40,000 more, which is money that the university doesn't have, he says. "We try not to buy anything we don't use." By contrast, Notre Dame leased most of its Microsoft software last year, and a decision to renew the annual lease, beginning July 1, appears inevitable, says Ms. Toll. Notre Dame, which has seen its Microsoft licensing costs increase from about $330,000 to more than $400,000 in the past three years, is still seeking ways to reduce its costs "drastically," she says. There seem to be few easy ways to do so. But Ms. Toll says she is not entirely comfortable knowing that after an institution enters Microsoft's leasing program, it no longer owns the licenses to use the products. "You're pretty much trapped," with no way of predicting how changes in the leasing program could drive up the university's software costs, she says. She likes the fact that leasing agreements "make it easier to move forward with technology changes." But she cites another common complaint about the terms of the leases: a new prohibition on colleges' providing upgrades of Microsoft operating systems to faculty members for their home computers. Work-at-home rights to two popular Microsoft products, Front Page Web page-design tools and Visual Studio programming tools, also were dropped. Counterproductive Rules? The new work-at-home rules have put Notre Dame in the awkward position of having to ask students and faculty and staff members to buy full-priced licenses for software that is already running on their home machines -- or else take the software off their computers. Ms. Toll finds that aspect of the new leasing agreement draconian. "Microsoft has to realize that no matter how much we communicate," she says, "it's not going to happen. It's just not going to." The cutbacks on work-at-home rights are counterproductive, says Mr. Toy, of the Foundation for California Community Colleges. "Faculty members do most of their work at home -- it's not a 9-to-5 job." He and other higher-education officials have talked with Microsoft about restoring some of the work-at-home rights that were eliminated in Campus Agreement 3.0. "We've gotten some indications that they're considering that," he says. Microsoft says it is listening to the feedback. "We're always open to that," says Ms. Tanner, the compliance manager. "We've been very open to suggestions regarding work-at-home rights, and how they're utilized in the campus environment, to get a better understanding of their value." Some academic officials say the new licensing choices have forced them to think about substitutes for Microsoft's desktop products. But they also say a practical alternative doesn't exist for them at the moment. "I want Microsoft to always feel like the fish can get off the hook," says Larry W. Bryant, director of academic computing at the U.S. Air Force Academy. But unless the Air Force changes its standard from Microsoft Windows, he adds, "the Air Force Academy is going to stay with that same standard." Nearly every college is in a similar situation. Asked by Unix users for an alternative to Microsoft Office, says Ms. Toll, Notre Dame installed Sun Microsystems' StarOffice, only to learn that many users decided that they didn't like it. "The reality," she says, "is that most people in the world use Microsoft Office, and if you're a faculty member collaborating with someone, you've got to be able to get their documents."
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Copyright © 2002 by The Chronicle of Higher Education