Microsoft Agrees to Unbundle Software in Deal With City

New York City has put the squeeze on Microsoft, negotiating a bulk software purchasing deal that should lower technology costs for the city and give government workers access to more modern applications. Instead of having dozens of agencies buy business software from Microsoft, New York has signed a citywide, 100,000-person deal that it says will save $50 million over five years. Mayor Michael R. Bloomberg and Steven A. Ballmer, Microsoft’s chief executive, were set to announce the agreement Wednesday morning at City Hall. The agreement required some concessions on Microsoft’s part. Usually the company sell licenses to bundles of business software products. But with New York City Microsoft agreed to charge only for the software that workers actually use. The move from Microsoft comes as it faces increased pressure from rivals like Google, I.B.M. and a host of start-ups in the office software market. We took advantage of the competitive moment, said Stephen Goldsmith, deputy mayor for operations. Google, in particular, has been aggressive in its march on Microsoft Office’s turf. It sells online versions of similar software, and charges simply $50 per person, per year. Los Angeles has been distributing Google’s software to about 30,000 of its city workers over the last year. But Microsoft’s agreement with New York covers a broader set of applications beyond office software that Google has yet to match.

Microsoft tends to sell licenses to bundles of products like its Office suite, which includes Word, PowerPoint, Outlook and Excel. Many city workers, however, only use Word to create documents and Outlook for e-mail. Under the new arrangement, New York will put workers into three different categories based on how many different applications they use, and Microsoft will charge for the software accordingly. The city plans to save additional money by using online versions of Microsoft’s software and storing some information for about 30,000 workers at Microsoft’s data centers. This embrace of cloud computing means the city will need to buy less computing hardware and that people can work together online on projects. We need to dramatically extend technology tools throughout our work force, Mr. Goldsmith said. There are a large number of individuals that don’t even have e-mail access. Gail Thomas-Flynn, a vice president at Microsoft who focuses on state and local government work, downplayed the changes in licensing terms and competitive threats. It is really an opportunity to work with the city in a new way in terms of innovation, Ms. Thomas-Flynn said. She also declined to address directly whether other cities can expect similar deals, saying only that New York is setting the pace. Some corporations and governments have been reluctant to embrace cloud computing when it comes to handling sensitive information. In this case, Microsoft would be in charge of protecting some of New York’s data rather than having the city’s own technology administrators in total control.

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