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Why Austin TX is considering a Microsoft enterprise license

Microsoft targets local governments as 'enterprise license' revenue opportunities.

(LinuxWorld) -- This is half of a tale of two cities -- Largo, FL and Austin, TX. On August 13, Newsforge published Robin Miller's profile of the IT department at the City of Largo, FL, and how the city uses Linux and X Window System terminals pervasively. (See the resources below for related links.) Miller quotes city officials as saying that using Linux and X terminals saves the city approximately $300,000 in hardware costs and a similar amount in license fees to Microsoft annually.

I read Robin's story with great interest as I've been conducting research for similar story about Austin. I'm a member of the Austin Linux User Group, which meets weekly at a city facility in downtown Austin. Several city employees are regulars. They pointed me to Patrick Jordan, an assistant director of IS at the city to learn more about Linux's role in the city infrastructure.

I spoke with Jordan on August 1. He said Linux got into the city's infrastructure in the classic manner -- unofficially. "I think we're at about 15 different low-end machines running copies of Linux on some specific utility task." Those tasks include powering the city's Apache Web server, monitoring network activity, and DNS.

Jordan illustrated the creeping Linux phenomenon with the following scenario, "I wish I could monitor this log but it's just not worth putting a server and a copy of commercial database up for it. But you have a bunch of resourceful people who will be found late at night throwing parts up in the air in a linen closet where you stored some Pentium 66, and before you know it they're running a copy of Red Hat 6.2 with some form of freeware database engine on it, and they are sending you reports that you are grateful for. But you're not exactly sure how they got it, and you don't ask."

In other words, a typical Linux in the enterprise success story. I asked Jordan to estimate how much money the city had saved using Linux, thinking I was giving him a fat, slow pitch right over the center of the plate. Jordan told me that similar applications purchased from a vendor like EDS would cost the city between $100,000 and $200,000. He went on to say the city hadn't really saved any money at all. "I didn't save any money doing it that way, I simply got something for free that I otherwise wouldn't have had," he said.

The $15 million rumor

Recently I watched the classic film "Life With Father," so strange notions about spending or saving money shouldn't have been difficult for me to grok. But a government employee passing up an opportunity to take credit for saving the city $200,000? It didn't make sense.

Digging further, I encountered a source who said off-the-record that Microsoft was auditing the city, and it faced $15 million in fines and license fees. A rumored solution to the city's lack of vigilance with licenses was to negotiate a long-term contract with Microsoft.

I contacted the mayor's office, the city manager's office, and members of the city council and asked each to go on the record and confirm or deny what were, essentially, rumors. I heard silence -- no responses. I filed a Freedom of Information request with Austin, asking the following:

  1. What is the city's total budget for software licenses
  2. What is the city's total budget for all IT expenses
  3. What percentage of (1) that goes to Microsoft
  4. Has the City of Austin recently performed an audit of Microsoft software and licenses, or is it currently performing such an audit, or has it been requested by Microsoft or the BSA to perform such an audit?
  5. If the city has performed such an audit, how much does it owe?
  6. If the city has performed such an audit, is it currently negotiating a settlement involving the purchase of additional MS products?
  7. If such a settlement is being negotiated, would it lock the city in to using MS products for specific purposes rather than allow it to select products from other firms, or from open source solutions?

Ten days later I received the city's official response. It consisted of the answer "We don't know" for questions 1, 2, and 3. The response to questions 4 through 7 was a copy of a memo (the memo's second page) sent by the City's CIO, Brownlee Bowmer, to the mayor and city council on August 3, and in addition a copy of a letter from Microsoft's Government Systems Group to Bowmer written on August 2. The FOI response asserted that Bowmer's memo was "regarding misinformation about an 'audit' and fine assessed against the City by Microsoft."

Here's what I learned in subsequent conversations with Bowmer, and a review of additional documents:

In March, Microsoft attorney Mary Jo Schrade sent Bowmer a letter. "A review of our internal purchase reports indicates the City of Austin may have a shortfall in Microsoft product licenses," her letter said. The City and Microsoft met later to discuss the letter.

As a result, the City performed either an "internal review" or a "voluntary software audit" at Microsoft's request. (City documents call it an "internal review." A Microsoft letter to the City called the effort a "voluntary software audit.") As I write this in mid August, Bowmer is negotiating to cope with the "shortfall" -- and possible penalties -- by entering into a long-term Enterprise Agreement licensing scheme. Such a contract would virtually exclude competitive software on city desktops or servers.

"The city and my office are currently in negotiations with Microsoft regarding a multi-year license agreement for the entire Microsoft product that the city uses," Bowmer wrote in a memo to the mayor. "The city ISD staff, with the assistance and cooperation of the other city departments did conduct an internal audit to determine our inventory position so we could conduct these discussions with Microsoft."

Bowmer wrote in the memo "Microsoft/BSA has not audited the city. The city has not been fined $15 million." As to exclusivity, Bowmer wrote to the question of Microsoft products versus Linux. He said "As the specialty for Linux is servers, and servers make up only 1% of the costs for Microsoft licensing, the financial impact is a fraction of the Microsoft licensing issue. The other 99% of the costs are related to MS Office, MS exchange, Desktop OS, Visio, MS Project, and other products for which Linux does not provide a solution."

Someone needs to tell the 400 employees of the City of Largo, FL that Linux does not support office productivity applications, but I digress.

In its FOI reply, the City of Austin didn't know the city's license or total IT budgets, nor how much it sends Microsoft every year, but Bowmer knows 1 percent of Austin's licensing costs are attributed to servers.

I asked Jordan, Austin's assistant director of IS, if he was aware of any interest in various city departments in using Linux on the desktop. "No, but if I found it, I would direct them to stop." Why, I asked? "Because I wish to have standard connections and the lowest possible total cost of ownership, which I think is driven by having standard connections, without accepting a lot of diversity to the desktop."

It's interesting that the City of Austin, which doesn't know how much it spends on software, or even all of IT, would concern itself with TCO (Total Cost of Ownership). TCO figures, like benchmarks, are driven by models that are tuned to present one solution in the best possible light.

Positive & negative

The best possible light that can be shed on the Enterprise Agreement being negotiated by the city of Austin is that it would help reduce the administration costs of tracking licenses. According to Jordan's financial reasoning, that wouldn't really be a savings since it's something the city doesn't appear to have been doing. One more advantage: The City has access to the latest software releases without additional charge.

According to Microsoft's Enterprise Agreement (see reference below), if Austin chooses to enter into such an agreement, Austin will pay a fixed amount per seat annually for an agreed upon pool of products. Once a year, new seats are added to the total in order to "true up" the arrangement, again at a fixed cost per seat. Downsizing isn't in the terms, however. Once a seat is added it can't be removed. The agreement appears simple to administer compared to other Microsoft licensing schemes.

But here are the downsides. It's expensive, or at least it appears to be. Bowmer wouldn't disclose the cost per seat that Austin would pay, citing his ongoing negotiations with Microsoft. The cost per seat varies by organization and is based on the number of Microsoft products installed at each desktop and server, and the number of PCs and servers overall. The discount from retail price does not appear to be dramatic. In cases where a site tends to skip releases between upgrades, it's cheaper to purchase the products outright and upgrade them as needed.

One significant disadvantage: At the end of the lease term, which is three or four years, the contract is over and so is the city's right to use the products. There is no fixed-price buyout option.

The contract will also bring Windows XP to the city, both on desktops and servers, which is an unknown technically and legally, and needs to run on modern hardware. The XP family is also a pain to administer if a PC's hardware changes, as XP devolves into stupid mode if it thinks it's running on an unlicensed PC. From an IS manager's perspective, the most charitable thing one can say about XP is that it's yet to prove its value.

There is an insidious aspect to a citywide, multi-year plan. It locks users into Microsoft products only. While the Enterprise Agreement doesn't specifically prohibit the use of other products, effectively it does. It's logical to assume that if you're paying for MS Exchange for three years why allow a department to consider an alternative. (Microsoft makes hay of this point in a Word-formatted white paper extolling the Enterprise Agreement.)

Looking for revenue

Microsoft chose the intent and language of its license agreements carefully. It's also in the business to make money, so it's not surprising it would concoct agreements that make it possible for large customers forget about tracking proofs of purchase in exchange for Microsoft maximizing its revenue.

The lesson is clear to Austin and the other 650 cities and counties that received similar letters this year as part of Microsoft's "anti-piracy" campaign. When licensing a Microsoft product you get a productive, functional product. You also buy into Microsoft's game, and need to play by the company's rules. Regardless of the size of your organization, save your proofs of purchase. Inventory your Microsoft software. Sooner or later you will receive a request from Redmond asking for a "voluntary software audit." If you can't prove you own it, you may end up paying for it twice. Or worse yet, you may end up being forced into a licensing agreement that costs you more, but leaves you with less.

More Stories By Joe Barr

Joe Barr is a freelance journalist covering Linux, open source and network security. His 'Version Control' column has been a regular feature of since its inception. As far as we know, he is the only living journalist whose works have appeared both in phrack, the legendary underground zine, and IBM Personal Systems Magazine.

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Zoue 12/19/04 09:36:38 AM EST

Best Wishes!