Companies like Microsoft and Oracle Have Long History of Preventing Competition for Government Contracts
By Ryan Triplette
A new research report from software and government procurement expert Michael Garland explores how legacy software providers like Microsoft and Oracle leverage their market dominance to restrict government IT systems.
As the largest IT customer in the world, there is no doubt that the fight for the U.S. government’s business is fierce. However, given that the business is paid for by taxpayer dollars, we have to ensure that the battleground for it is balanced.
The Garland report, titled “Vendor-Lock and the Lack of Competition in the Government’s COTS Software Estate,” shines an important light on how legacy software providers use the U.S. government’s dependance on dominant software to preclude competition in adjacent product markets – such as for cloud and cybersecurity services. These providers use restrictive licensing tactics – ranging from conditioning discounts on the adoption of these adjacent products to weaponizing software audits – to entrench their position with government customers. The report exposes how anti-competitive tactics not only decrease competition among government IT contracts but also cost taxpayers significant resources.
Garland Report Finds Taxpayers Foot the Bill for Microsoft’s Anti-Competitive Behavior
There are several key takeaways from the Garland report that demonstrate how the bullying tactics of certain legacy providers cost taxpayers, squash competition for government contracts, and limit the ability of the U.S. government to access best in class technologies.
Garland’s research specifically finds that:
- A five percent improvement in price performance, due to enhanced software competition, could produce savings up to $750 million annually.
- Microsoft and Oracle, the world’s two largest software companies, received 25 percent to 30 percent of their contracts without meaningful competition (and likely much more).
- In one prime example: the government was willing to spend $112 million more to buy Microsoft Office than Google Workspace to avoid switching costs.
These are staggering numbers. All the more so because they are limited just to the federal government. When one bears in mind that this behavior is also rampant throughout the public sector – including the states – and the U.S. commercial sector, it is clear that the true cost of these practices is significantly more – both to organizational bottom lines and human resources.
Lack of Healthy Competition Gives Legacy Software Companies Power Over the Government, Taxpayers, and Competition
Garland’s report also shines light on how software vendors can, “leverage their power to impose a number of harmful practices on the government.”
As noted in the report’s executive summary, this includes:
- Licensing restrictions requiring the government to repurchase previously paid for software, in order to use those applications in competitive cloud environments.
- Fixed, inflexible annual support fees, that cannot be reduced, even with reduction in software usage.
- Predatory software audits (as documented by lawsuits) used to cement contract negotiations, and in one case, force the government to spend hundreds of millions of dollars unnecessarily.
If there is any question as to the frequency of these practices, one need look no further that a recent report by the Office of Inspector General for NASA questioned $35 million ($20 million in penalties and $15 million in overspend) to Oracle alone over the past five years, attributing the overspend to concerns about the about an audit of an old license.
The good news is that bipartisan members of Congress have already expressed concern over this predatory behavior. In a letter to the Government Accountability Office Comptroller General, Homeland Security and Governmental Affairs Committee Chairman Gary Peters and Senator Joni Ernst said, “We are concerned with recent reports that federal government contracting for certain software licensing agreements may be predicated on the use of a company’s cloud services…Specifically, we are concerned that such restrictions may reduce Federal agency capabilities, increase costs, and add unnecessary complexity to the contracting process.”
Further, the Strengthening Agency Management and Oversight of Software Assets (SAMOSA) Act – bipartisan and bicameral legislation from last Congress that we expect to be reintroduced later this year – would significantly improve the government IT procurement process as outlined in an earlier blog by the Coalition. The Senate should swiftly move to introduce this bill again and pass companion legislation soon.
The U.S. federal government is the largest single consumer of IT on the planet and companies like Microsoft and Oracle use restrictive licensing tactics to stamp out healthy competition for government contracts and drive up costs to taxpayers. The same can be said for the private sector where they drive up costs for businesses, regardless of size.
As stewards of our taxpayer dollars, regulators and lawmakers in Washington have a responsibility to ensure the competitive acquisition and efficient management of software assets by promoting clarity in licensing terms and choice of vendors. This not only helps to serve the purposes of IT customers in the US government, but will pave the way for IT customers throughout the public and commercial sectors.
Until then, taxpayers – and software customers around the world – will remain on the hook to pay for these companies’ predatory tactics.