OMB crafts enterprise licensing plan

DOD ESI page

The Office of Management and Budget plans to unveil a strategy to create governmentwide enterprise software licensing agreements, harnessing the combined purchasing power of multiple agencies to drive down the prices on widely used software products.

The initiative will be modeled in part after the Defense Department's Enterprise Software Initiative (ESI), which DOD officials say has saved the department more than $1 billion since it was instituted in 1998.

Under the program, agency officials would choose software that is widely used across most or all agencies and negotiate licenses with vendors based on the expected number of users, said Mark Forman, administrator of OMB's Office of E-Government and Information Technology. "These are things we buy in bulk," he said. The initiative is part of OMB's latest E-Government Strategy, released last month.

The savings can be dramatic. The combined buying power of Defense agencies has enabled DOD to negotiate unit prices that are often significantly less than the retail price or pricing on the General Services Administration's Federal Supply Schedule. Microsoft Corp. software, for example, is discounted as much as 38 percent off pricing on GSA schedule contracts.

"By and large, it's going to be very good for the government," said Steve Kelman, professor of public management at Harvard University's Kennedy School and former administrator of the Office of Federal Procurement Policy.

During the past decade, the government has moved away from buying shrink-wrapped software and paying by the unit. Instead, it is buying licenses for an agency or a unit within an agency, creating significant savings, Kelman said.

But enterprise licensing takes careful planning to be successful, said Floyd Groce, enterprise processes team leader for the Navy Department's chief information officer's office.

In the months leading up to the initial work on ESI, "we saw that there was a lot of buying of information technology in very decentralized ways, in particular in looking at software licensing," he said. "Because you're buying product-use rights, the rights to the intellectual property, we started thinking you need to look at software as an asset and manage the whole life cycle of that asset."

There was some resistance from vendors, who suddenly had to deal with all of DOD rather than an individual branch or command and saw their per-seat licensing prices drop accordingly.

However, vendors came to appreciate the value of departmentwide licenses, with their greater penetration and long-term commitment, Groce said.

DOD has awarded licenses to multiple vendors in some categories. Vendors that hold DOD licenses include IBM Corp., Oracle Corp., Merant Inc. and Symantec Corp., with licenses channeled through several major resellers.

Software companies are watching the initiative's development closely. Adobe Systems Inc., which provides its software to DOD at discounts of up to 46 percent, is generally supportive of Forman's initiatives to improve procurement, said Kelly Moodie, senior marketing manager for global government at Adobe. Enterprise licensing lowers the per-seat price the company can charge but can also cut the company's costs by eliminating multiple small contracts in favor of one larger one.

"I think it's going to take a review of the total equation" to determine the impact, she said.

"On the side of the government, it's a total win. You get volume discounts you wouldn't get otherwise," said economist Lisa Paulson, regional manager for federal sales at Sybase Inc. For software firms, "you have an initial big bump in license revenue. Then you look at the next year, and where's the incremental revenue going to come from? The company gets a great deal in Year One, but then in Year Two, how are you going to keep the lights turned on?"

Enterprise licensing creates a stark win/lose line for software manufacturers, said Brian Seagrave, managing director of federal enterprise business solutions at Computer Sciences Corp., a systems integrator.

Vendors that win the governmentwide contracts can look forward to a long relationship with the government, but those that lose out will have fewer opportunities — and less support from companies such as CSC.

"If [the agencies] said that Oracle will be the standard for federal financials, for example, then all of us integrators will stop carrying a bench of SAP [AG products]," he said.

The smart software makers know that enterprise licensing, whether governmentwide or on the smaller agencywide scale, is coming and in many cases already here, said Ray Bjorklund, vice president of market intelligence and chief knowledge officer at Federal Sources Inc., a federal market analysis firm.

"A company could make a lot more money selling many individual copies of the same software. But I think industry realizes that's not really realistic," he said.

It's not all bad news for vendors, though, said Barry Ingram, vice president of market strategy, technology and innovation at EDS, an IT services company. "If I can get a guaranteed order for X-thousand copies of something, that's guaranteed revenue, as opposed to having to go out and sell over and over," he said.

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Saving a bundle

Deals made through the Defense Department's Enterprise Software Initiative include:

Microsoft Corp. software at up to 38% off the General Services Administration's schedule contract price.

WinZip compression/ decompression software at a nearly 95% discount from list price.

Computer Associates International Inc.'s Unicenter enterprise management software at 64% off the GSA schedule contract price.

Novell Inc. software discounted 48% from GSA schedule contracts.

Merant Inc.'s PVCS change management software discounted 21% ffrom GSA schedule contracts.