Telstra Used Linux To Get Microsoft Discounts

awful writes "Last year Slashdot ran a story about Australia's largest telco moving to Linux desktops. Turns out it was all a way to get some tasty discounts from Microsoft. The Australian is reporting that Telstra just signed a four-year deal with MS for $AU15-20 million, for 40,000 users. No figures yet on how much of a discount Telstra got, but MS might want to rethink handing back all its cash to investors if this is how they're going to do business from now on ..."

Comments

Go Back Three Spaces

[SYFer]

One small setback for Linux; one giant leap down the slippery slope for MS.

If this sort of thing isn't direct evidence of the sure eventual demise of the Business Model as Bill Knows It, then I don't know what is.

"Thank you for calling Microsoft Corporate Sales--in order to direct your call, please enter 1 on your touchtone phone if you are oblivious to Linux. Enter 2 if you have priced a Linux solution for your enterprise. Enter 3 if you have considered a Linux operating system..."

Re:Go Back Three Spaces

[chachob]

"...and press 4 if you are actually using linux in hopes of getting a discount."

seriously though, this is quite the dilemma for microsoft. on one hand, more companies might consider this method, and microsoft wins because of a larger userbase for its products. on the other, it has its investors whining because of these business methods that are losing profits. it'll be interesting to see how microsoft plays this to keep its investors happy while keeping linux pinned down (somewhat).

Ahh... competition

[oldosadmin]

Sounds like capitalism at work :)

I love linux, but, go Telstra :) Way to use the free market to your advantage.

Re:Ahh... competition

[kingbyu]

A lot of people tend to forget that Linux is good for people who use Windows because it forces Microsoft to be competitive in the market. Not only does it force Microsoft to continue to compete with their technology offerings, but also to compete with their prices. Even if Telstra didn't switch to Linux, its still a Linux victory because of the position it puts Microsoft in.

Its just too bad Linus won't be getting any thank you cards saying "Thanks Linus for making Microsoft better just to compete with your Linux." (Although they should send him cards like that).

Re:Ahh... competition

[Uncle Jimmy]

I love linux, but, go Telstra :) Way to use the free market to your advantage.

Wow. You obviously aren't from Australia.

Way to do business

[usefool]

Maybe, just maybe, this is how Microsoft intends to do business in the future?

This kind of first-MS-then-Linux-finally-MS stunts by any company is going to give free publicity to Microsoft, and more and more companies will be attracted to buying MS products because they thought they're getting a discount now.

And frankly speaking, $375 per user is still better than $0 per user, and lose face to Linux.

Re:Way to do business

[Fished]

And frankly speaking, $375 per user is still better than $0 per user, and lose face to Linux.

Indeed. This is especially true since Microsoft's marginal cost on each of these licenses is more or less $0. They could sell license certificates for $5 apiece and still be better off than not making the sale (excepting possible market effects if they sell stuff too cheap too often.)

Re:Way to do business

[MBCook]

But there are two problems with that method. The first is that if MS gets used to this and starts calling people's bluffs, then one of two things will happen. They'll buy MS at MS prices, or they'll go Linux at the cheap price. I wonder which. That would be a blow for MS.

The second problem is even if MS doesn't call bluffs (and not all will be bluffs, of course) this will hurt MS's proffit margins. Without those amazing Windows and Office margins, they have less for everything else. That means either making Windows and Office and such better so they are worth that high price (great for consumers), or they have to stop branching out into everything and only do things they proffit at (not neccessarily bad for others).

So no matter what happens, MS could be facing some problems. The fact is MS isn't a total monopoly (like AT&T was, or the post office is for mail), they do have competition. And when you're not a total monopoly, you can lose that position. MS's reserves and such can only let them play bully so long before they start having to really compete on prices, features, and such. It may take years and years, but this is a crack in the damn of the monopoly. Eventually, MS will lose that position and be another business in free-market competition.

Also, "... be attracted to buying MS products because they THOUGHT they're getting a discount now." Huh? Why would anyone look at MS's software because they might get a discount? I would bet in at least 99% of the cases, they would have been looking at MS anyway. I don't think this really changes things for companies seeking MS, if anything they'll seek Linux.

And this is NOT good PR for MS. This is "they almost lost and had to dive to save face and get the account" publicity. That's not what you want. You want "they came in and even though they were more expensive, they blew away the competition" PR. These kind of reports (that MS dropped prices because of the threat of Linux/MacOS/anything) are BAD for MS any way you look at it.

"discount" ??

[Quixote]

Even taking the lower figure, Telstra paid A$ 375/license. This is no discount! Since Microsoft has huge profit margins, I'm sure they're making a tidy profit on this.

Wake me up when Microsoft beats Linux on pricing. ;-)

Timothys biz advice to MS

[mr_z_beeblebrox]

MS might want to rethink handing back all its cash to investors if this is how they're going to do business from now on ...

Microsoft might suck in terms of security. They might suck at guessing what users will want and innovating to it (they guess what users are using and make their own version). But I do not think that they will find value in business suggestions on /. even from an editor. Sorry, just felt compelled to say that.

Of Course

[pHatidic]

Naturally it follows since everyone thinks that linux is superior to windows in every possible way, the only possible reason a company could consider two options and then choose microsoft is if they were trying to play microsoft. Which of course also clearly justifies this article going into the linux section.

/sarcasm

Re:Go Back Three Spaces - Or not

[Judg3]

I doubt it - this is the way business has always worked, it's only front page news because it's Linux vs MS.
If it was HP vs Cisco or any other 2 vendors which selling competing products it would have been rejected.
Hell, if you're in charge of buying product X for your company and DIDN'T try to lower the price buying shows quotes from companies Y and Z, I'd worry!

um.

[SinaSa]

Somehow I doubt this is the case.

Telstra's IT head wanted to run Linux to cut costs. In a business they figure things out using a cost-benefit ratio. In fact, most human beings do this.

Microsoft simply offered them a deal with better cost-benefit ratio. Telstra aren't going to be downloading ISO's, they would be buying something like SuSE or RedHat. So Microsoft simply discounts prices, and Telstra has cut costs, without needing to move everything across to a new system.

As an Aussie, it's my duty to hate Telstra, but the headline is so very wrong.

Re:They're paying $500 per user.

[challahc]

$500 AUD =~ $351 USD
$125 AUD =~ $87 USD

Well true it's $500 per user...

[atezun]

But this isn't just covering Windows Liscenses, It also mentions they're getting exchange 2003 and office 2003 plus they're probably getting quite a nice support package from MS. A copy of windows and office alone is more than $500 in store in Canada which has relatively the same dollar value as the Australian Dollar right now. Make No mistake, they definately got a discount.

Currency conversions

[mjtg]

For non-Australians in the audience, note that $1-AU ~= $0.70-US. So the cost estimates are around $10.5M - $14M US, or $265.50-$350 US per seat.

Isn't that how competition is supposed to work?

[walterbyrd]

Give me a better price, or I'll go with the competition. I do that when I'm buying a refridgerator. What's the problem?

Frankly, I think we've grown so accustomed to msft's monopoly, that we've forgoting that competition is supposed to be a normal way to do business.

If msft want's to fight for their business that's fine. I'm just glad that there finally is a something that is real competition to msft's monopoly.

One of the primary difficulties

[Anonymous Coward]

In product pricing is trying to reclaim something called the "consumer surplus". The idea here is that the amount of money that each of your potential customers is willing to pay is different; vaguely speaking, you want to choose the price that balances out being low enough that you retain as many of your customers as possible, while being high enough that you make a lot of money on each unit. Still, there's always going to be that consumer surplus-- the amount of money lost to the fact that a subset of your customers would have been WILLING to pay much more, but because you have to charge them the same amount you charge everyone else you only got the same amount from them you got from everyone else.

This is why you're in very good shape if somehow you can work your way into a sales model where, as happens with an auction, or with car sales, you're somehow able to tailor your price to what exactly each individual customer is willing to pay. You maximize both the number of customers you get, and the amount of money you could get from each one.

This is where Microsoft's doing and it isn't a bad thing for them. Microsoft's prices are ridiculously high, and the market is beginning to realize this, but rather than actually correct for this and charge reasonable prices, they're simply continuing as they have and making special allowances for those customers who might be leaving.

Or, in other words: This shouldn't be seen as a victory for Microsoft's competitors because Microsoft's having to lower their prices for the customers who are threatening to leave. It's a victory for Microsoft, because Microsoft isn't having to lower their prices for everyone else.

Not all that suprising....

[urbaer]

when you consider it is Telstra who we are talking about. Telstra seems to want to charge whatever it wants, however it can only increase it's charges in line with costs. So jumping on Linux would decrease thier costs and the ACCC would jump all over them.

Maybe I'm just a cynic and my logic is flawed, but it doesn't suprise me that one monopoly should use get into bed with another monopoly.

When I did work for the state we used this method

[isolation]

I was doing some security work for goverment agency in South Carolina and this was the method we used for getting better deals out of Microsoft.

MS Sales rep: "This is the best deal we can give you"
Client: "OK thats fine. Our IT staff is suggesting moving to Linux"
MS Sales rep: picks up a cell and calls the office....."uh-hu"..."linux"..."uh-hu"....hangs up phone. "Ok how about this deal on a Open License package. We can knock another 20% off."

The Microsoft sales team has been ordered to win over Linux at all costs and they mean it.

Competition, and from two sides

[digitect]

MS might want to rethink handing back all its cash to investors if this is how they're going to do business from now on ...

But isn't this the only option they really have? This is what competition is all about!

Everyone knows Microsoft has been cleaning up because they are a monopoly. (Whether a good or bad monopoly is another subject.) With competition, everything changes. To keep up you have to make an offer to the market with some efficiency, service, feature, innovation or quality that no one else can provide.

But on the desktop, Microsoft is now being pinched from above (Apple) and below (Linux). Granted these competitors are not yet worthy to take the whole pie but I'm sure Redmond is beginning to understand that they are fighting a two front war. And their ability to attack one competitive front only exposes a weakness to the other. The article suggests to me that this reaction is against the bottom: Linux is simply cheaper, Microsoft has to respond with significantly better pricing to make the sale. (Maybe Longhorn is an effort to compete more with Apple by offering a competing design level or media friendly platform?)

Having been around a while, I find this all very facinating because I can see how fast the tables turn in this industry. What they once did to others is now being done unto them. :) The best part is that the market can now feign to either side and Microsoft has to respond. They can negotiate against price point or from design/usability.

During such an innovative time (historically speaking) many disruptions occur. It's nearly impossible to keep any ship afloat for more than a generation. As Microsoft enters its second one, I feel certain we'll see more of this type of behavior as they struggle to keep momentum. Sit back and watch the show!

Re:Ow the Irony

[Reivec]

wow you totally missed the spirit of the comment. /. tends to put MS in a bad light any chance they get (can't say I blame them). The comment was to point out that MS isn't going to get the profit margin they want anymore so maybe they should rethink giving even more of their profit away. Thus the comment was trying to question MS business decisions. NO WHERE in there does the fact that this is a aussie company come into play. It was not intended to make MS look like a victim I assure you.

Re:Go Back Three Spaces - Or not

[timeOday]

I doubt it - this is the way business has always worked

But having competition is precisely "the demise of the Business Model as Bill Knows It"!

You don't rake in 80% profit margins year after year by undercutting the other guy, you do it by being the #1 and only.

But if too many of these "linux switches" turn out to be bluffs, MS won't be so generous with the discounts.

Re:They're paying $500 per user.

[Zak3056]

Unless my math is wrong, they're paying about $500/user. $125/year. But since most companies will not upgrade the OS or applications more often than every 4 years, they basically are paying $500 to Microsoft for each user. That's a ton of money-- maybe it's all worth it, but I guess this is what people are talking about when they mention the "Microsoft Tax."

Given that it's Australian dollars, and that it likely includes all the goodies (Exchange, SQL Server, etc) along with actual support, I'd say this is a hell of a good deal.

Telstra are scum...

[Goonie]

For the benefit of our American readership, Telstra are Australia's local piece of evil incarnate. They're 51% government owned, so they combine the worst characteristics of rapacious private companies and pig-headed government bureacracy. They price-gouge to an incredible degree on access to the local loop, they deliberately delayed the introduction of DSL services so they could cream more money out of business clients using ISDN (at truly outrageous prices), and deliver shocking service to their customers (ask Bigpond broadband internet customers about the reliability).

Re:They're paying $500 per user.

[SEWilco]

Mod parent down he's claiming that microsoft doesn't cost a ton of money!

That depends upon the weight of Australian Dollars and whether it is a metric ton.

Re:They're paying $500 per user.

[lazybeam]

Microsoft is getting 180 tonnes of dollars from Telstra, if they were to pay exclusively in one dollar coins. :) Thats 4.5 kg per user.

Reference: http://www.ramint.gov.au/making_coins/coin_designs .cfm. One dollar coins are 9.00 grams each.

Re:Go Back Three Spaces - Or not

[Kenardy]

That's the magic of it all ... it's not a bluff. If Microsoft doesn't actually cough up the serious discounts, the Linux card gets played. Unless staying with Microsoft is significantly less expensive than changing to Linux, Linux gets installed over MSFT. The more security (and other) problems MSFT operating systems and application programming have, the greater the margin they have to beat Linux by.

Even with the discounts, the sales are still profitable (they have to get below ~15% profit before Bill starts looking for the exit) but the days of 'gag a maggot' margins are nearing their end. This leads, necessarily, to the question of how long MSFT stock will remain at its current levels.

And, if MSFT stock options become less attractive, will they be able to retain their programmers for the same cash wages?

A loss of profit margins leads to a loss of stock value which leads to a loss of programmer income which leads to a brain drain. Responding to the brain drain by upping the cash component of the wages narrows the profit margins even further.

This cannot be good for Microsoft.

Well... not actually down, as such.

[leonbrooks]

It's more likely that their internal billing system screwed up again and disconnected them.