Microsoft Inks Custom Licensing Deal with New York City for Cloud Services

Microsoft Corp. last week signed a one-off, consolidated licensing deal with the City of New York to provide it with cloud-based applications and services, a transaction officials estimated will save the city some $50 million over the next five years.

The agreement appears to benefit both parties in that it enables New York to consolidate 40 separate licenses and a similar number of service maintenance contracts under one umbrella deal, and provides Microsoft with a notable client, sporting 100,000 users, to add to its cloud services portfolio.

Late last year, Google Inc., Microsoft’s chief rival for cloud application services, signed a similar, multi-million dollar deal with the city of Los Angeles to provide 34,000 of its employees with email and application services. Google has also garnered cloud application and services pacts with Washington, D.C. and Orlando, FL.

Officials did not disclose if Google was involved in the bidding for this contract.

New York City Mayor Michael Bloomberg and Microsoft chief executive Steve Ballmer together outlined the agreement at City Hall, flanked by a number of city officials responsible for hammering out the details.

New York City’s Department of Information Technology and Telecommunications, headed by Carole Post, commissioner, is technically the beneficiary of the contract.

“This is a ground breaking partnership that will move our technology efforts to an entirely new level while saving us money in the process,” said Bloomberg. “This is about making city government work better for the people we serve and doing it at lower cost,” he said.

While no specific terms of the contract were disclosed, Bloomberg suggested that Microsoft’s favorable pricing won New York over.

“By capitalizing on the City's buying power, consolidating dozens of separate City agency license agreements into a single one, and paying for software based on use, we'll save $50 million over the next five years," he said. “This will give City employees the same cost cutting edge resources that you find in top private sector businesses.”

The arrangement required compromises both on Microsoft’s and New York’s part. Similar to most software vendors, Microsoft typically sells licenses to large entities based on an entire bundle of software but in this case the company said it will allow New York to pay only for software that it uses.

Accordingly, the City agreed to segment its software users into three buckets, namely those who need only sporadic access to specific tools, regular users of Microsoft’s basic programs, and power users deploying the full complement of the vendor’s applications and services.

Some 30,000 City employees will gain access to Microsoft’s cloud services in a first wave of implementing the agreement, officials said.

"With Microsoft's latest cloud-based productivity and collaboration tools, New York City employees will benefit from having better access to information, improved collaboration and information sharing among city agencies,” Ballmer said.

City officials said that the deal is tied to a larger initiative, called the Citywide IT Infrastructure Services program, to consolidate New York’s 50 separate agency data centers into one centrally managed facility.

Bloomberg and Ballmer also jointly announced that New York City will host Microsoft’s Imagine Cup 2011 Worldwide Finals in July 2011. The event challenges high school and college students to help solve the world’s toughest problems through technology.