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'All-You-Can-Eat' Gives Microsoft's Rivals Indigestion

Software: They call deals offering customers unlimited use of certain products unfair. Firm says they're simpler, cheaper.


SEATTLE — At a time when Microsoft is under fire for leveraging its desktop dominance to push into new product areas, the company is making increased use of controversial "all-you-can-eat" agreements that competitors complain give the software giant an unfair advantage.

Under these "enterprise agreements," Microsoft charges its large customers a set fee in exchange for allowing employees unlimited use of a predetermined selection of Microsoft products.

Although such agreements are not uncommon in the industry, observers say Microsoft's use of the practice poses special problems because of the broad range of products Microsoft offers and the special access it has to top executives.

Microsoft Chairman "Bill Gates or one of his underlings will approach the CEO of a company, where no other vendor could get an audience," said Patrice Russell, vice president of Russell Information Sciences. Russell says her Aliso Viejo-based company, whose scheduling software is used by 1 million customers, finds it tough to sell into accounts with such agreements.

"They are all Microsoft all the time," Russell said. "There isn't the typical software evaluation based on the functions of the product, because they are getting the Microsoft products" at no extra cost.

Jerry Masters, Microsoft's senior director of planning and reporting, said the number of such agreements has "grown quickly" over the last year and amounts to hundreds of millions of dollars in annual revenue for the company. But Masters said the agreements are designed primarily to simplify what can often be complex licensing arrangements.

Last month, Indiana University reached a four-year agreement with Microsoft under which the university will pay $6 million for the right to distribute a variety of Microsoft networking, Web development and personal productivity software, such as Word and Excel, for use by its 114,000 students, professors and staff members.

Elizabeth W. King, general manager of Microsoft's Education Customer Unit, said the company could offer a similar enterprise agreement to the California State University system. Under such a deal, she said, the university would get a substantial discount over and above the typical 50% to 80% discount for educational institutions, for using mostly Microsoft networking and communications products to connect its 350,000 students.

Microsoft was recently dropped from a more extensive proposal under which the university would have chosen an all-Microsoft environment in exchange for a Microsoft equity investment in a business-university partnership to be established to build a new communications system.

Joe Hartley, a manager in rival Sun Microsystems' education unit, said such agreements can create problems for large organizations because they make it difficult to match software to specific needs.

"Cal Poly, which has a lot of technical students, has different needs from Fresno State," he said. "It's better to let each campus decide what technology they need than to dictate everything centrally."

Leslie Helm can be reached via e-mail at

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