In my last
few posts (It’s
a mixed source world and A
fresh approach to tech procurement), I talked about various strategies for sourcing
the right tech solutions to help you meet your goals cost-effectively. Today, I
want to introduce one more critical factor to consider in the procurement
process: the business models of your potential tech providers.
understand the basic differences among the prevalent models, just follow the
- Some companies, like Microsoft, generate revenue
primarily by selling software, services, and devices to individuals and
organizations. This model is based on clear transactions between the supplier
and you, the customer. You pay for a license to use our products and services,
and if we don’t live up to your expectations, we lose your business.
- Others offer free or low-cost open source
software, then make money on the back end through consulting fees and the customization
that may be required to tailor their products to your specific needs or to make
them interoperable with your other systems.
- Other companies profit by providing free online
services that fuel advertising sales. Their approach relies on massive data
acquisition—they accumulate as much data as possible about consumers in order
to better target and sell advertising. In this model, the company’s real
customers are advertisers, not the end users of the software or services.
distinctions may initially seem tangential to the public official or project
manager whose bottom line is finding the best solution at the best price. But
it’s important to weigh the motivations driving companies in the tech sector
because those motivations can affect the results the public sector gets out of
My goal here
is not to say that one business model is better than another. Rather, I want to
provide a framework to help you evaluate how tech providers with different
models align with your policies and objectives, and let you decide for yourself
which is the best fit.
at how this plays out in some key policy issues:
In this era
of cloud computing, security is crucial from the device to the enterprise level.
But security takes time and commitment, and it eats into profits—which is why
many companies cut corners. Other companies, including Microsoft, have implemented
ISO 27001 security controls and have thoroughly embraced security as a
non-negotiable design feature in software and devices.
another top concern for citizens and governments. What steps does a vendor take
to protect sensitive financial, health, and other personal data, for example,
and are those policies spelled out transparently in its contracts? Microsoft
adheres to gold standards such as the European Union’s Data Protection
Directive, and follows strict guidelines for how data are stored and
transferred. Vendors that collect, analyze, and resell consumer data to third
parties, or use it to target advertising, may have an incentive to dilute those
standards. And in some countries where
there are stricter privacy laws for specific sectors such as education and
health, there is a clear tension between the success of the business model and
obeying those laws.
Intellectual property rights
has a strong business incentive not only to innovate but also to make sure our
innovations are adopted. That’s why we license our technologies and allow other
companies to share them with their customers as part of their value
proposition. In turn, we license intellectual property from entrepreneurs and
other vendors and include those technologies in our products. Companies built
on an ad-revenue model, on the other hand, want to gather user data as
inexpensively as possible, so they may lack incentive to advocate as vigorously
for strong IP rights.
Proprietary, open source, and mixed source support
Consider the implications of
different licensing and development business models on issues like total cost
of ownership and interoperability. At Microsoft we’ve structured our licensing
agreements to eliminate hidden costs, we support OSS and mixed source
environments, and we’ve demonstrated our commitment to out-of-the-box interoperability.
By contrast, a business model based on OSS may mask additional costs because
the company behind the product makes money from their customers in other ways. And
the interoperability of OSS varies, depending on the vendor’s support for open,
well-documented standards and other contributing factors.
tech procurement is a complex responsibility. You—and your constituents—rightly
want to be sure that taxpayer dollars are spent as judiciously as possible. Following
the money, and understanding what really drives your suppliers, can make that a
lot easier, helping you to be certain that their interests align with the
interests of your citizens.
a comment or opinion on this post? Let me know @Microsoft_Gov. Or e-mail us at email@example.com.