No less a presence than Microsoft CEO Steve Ballmer attended a press conference with New York City mayor Michael Bloomberg to announce a new software deal for the Big Apple. Details of the deal, including the related discount and Microsoft's willingness to be flexible, suggest that open source and cloud-based office productivity suites are becoming central to getting better terms in your licensing discussions with Microsoft.
According to New York Times reporter Ashlee Vance, Mayor Bloomberg began the press conference stating, "I am sorry if you are looking for a story of sex and pizzazz. That is not what this is about. This is about making the city government work better."
The key conclusion: Microsoft is willing to cut deals
The deal, labeled as a "first of its kind" by Ballmer, is valued at $20 million per year and will save the city $50 million over five years. To put these figures in perspective, New York City's annual budget is about $63 billion.
New York City shifted from individual city agencies negotiating separate deals with Microsoft to a citywide licensing deal for the city's 100,000 employees. Additionally, Microsoft is allowing New York City to pay license fees based on the actual applications that city workers use. Vance reported that "New York will put workers into three categories, based on how many applications they use."
It could be argued that few enterprises are large enough and have not yet consolidated corporatewide licensing to follow in New York City's path. In fact, Ballmer is quoted as saying, "Corporations often negotiate more nuanced licensing deals than government bodies." However, categorizing employees based on the applications they use and paying for a few applications together versus choosing between an individual product license and a significantly larger product suite license could become more common in the enterprise now that governments have pioneered such deals.
Did Microsoft accept a 33 percent revenue reduction?
While "sex and pizzazz" may have been absent in the announcement, the deal and the negotiation could hardly be considered just another sale. Instead, it's a sign that something is changing at Microsoft.
For one thing, it's not every day that Ballmer attends a press conference to announce a deal, especially when the arrangement will potentially subtract $50 million in revenue for Microsoft over five years.
The quick math suggests New York City was able to negotiate significant concessions from Microsoft. The deal is valued at about $20 million per year, suggesting about $100 million in revenue to Microsoft over five years. Next, the deal is expected to save New York City $50 million over that same period.