Microsoft Defends Enterprise Turf With Big Pentagon Deal

Microsoft announced last week it will provide its latest software, including Windows 8, to the Department of Defense in a US$617 million deal that the DoD said will help streamline costs and foster inter-agency collaboration.

Under the three-year deal, the Air Force, Army and Defense Information Systems Agency will have access to software including Microsoft Office 2013, SharePoint 2013 Enterprise and Windows 8. The deal is the most comprehensive licensing agreement it ever secured with the Defense Department and will cover almost 75 percent of the department’s personnel, Microsoft said.

The DoD expects to save more than $100 million each year, since the large-scale investment would allow multiple departments to streamline licensing, installation and maintenance fees. Microsoft’s updated system includes better security and content management tools, the department also noted.

The emphasis on social communications and improved enterprise search with its newest software will ease data sharing across agencies and increase productivity, Microsoft said.

Microsoft and the Defense Department did not respond to our requests for further details.

Enterprise Push

Microsoft’s contract with the DoD comes as competitors such as Google are creeping into the enterprise software space. While Google and others can offer compelling and affordable products, however, this deal reinforces that for offices that need complex productivity, Microsoft is still the industry standard, said Trip Chowdhry, senior analyst at Global Equities Research.

“Microsoft was the only product for enterprises for awhile, so by default, they are going to be the leader in the industry,” he told the E-Commerce Times. “This just shows that for enterprises looking for serious office productivity, no product can compare, especially because large corporations or government agencies are so fully invested in the product.”

Microsoft is fully aware of its challenges outside that established enterprise sector, though. In the making of its revamped operating system, the company said a main focus was to increase usability, especially in mobile devices. Along with making Microsoft more competitive in the consumer market, it could also spread adoption among a younger, more on-the-go set of professionals that are increasingly using their own tablets or smartphones to conduct business, said Chowdhry.

Securing a deal for those licenses is not the same as amassing a loyal Windows 8 fan base, though, Michael Silver, research vice president and distinguished analyst at Gartner, told the E-Commerce Times.

“Just because they are licensing Office 2013 and Windows 8 doesn’t mean they will be deploying them broadly any time soon, but an organization that is interested in tablets would certainly be a logical candidate for Windows 8, even if only for the tablet users,” said Silver.

Still In the Game

Neither Microsoft nor the DoD released the specific financials of the deal, but it’s possible that the company might have adjusted its notoriously complex pricing structure for this agreement, said Silver.

Google, by contrast, has a cheaper and simpler price point for its rapidly growing enterprise software. If Microsoft was willing to negotiate with the DoD contract, it could indicate an increased flexibility from the company’s licensing department, said Silver.

“The question is how good a price they got,” Silver pointed out. “If the pricing is very good, it may mean Microsoft is ready to deal more.”

That willingness to adjust to changes in the market is a sign that Microsoft still has a solid place in the industry, even as fresher companies emerge, said Chowdhry.

“The green field opportunities are going to competitors,” Chowdhry noted. “But Microsoft is not going to disappear. They will always be a player. [CEO Steve] Ballmer is trying to move a very big, heavy ship in the right direction. They’re slow and they’re less innovative than their competitors, but many enterprises are heavily invested in the Windows ecosystem, and you can’t switch out from that overnight.”