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Microsoft does $6 million college deal

The giant, which is increasingly setting its sights on higher education, strikes a lucrative deal with Indiana University, to the chagrin of competitors.

Microsoft (MSFT) is increasingly offering universities technology contracts that are too good to refuse. And starting tomorrow, Indiana University will begin giving out the software giant's suite of products for free to its 100,000 students and staff.

Indiana University (IU) was slated to spend $20 million over the next four years to equip its campuses with the latest applications and to switch from Novell's NetWare and UnixWare operating systems to Microsoft's Windows NT. Instead, IU combined all its departments' technology budgets and worked out a $6 million deal with Microsoft to upgrade the university's infrastructure and to supply students and faculty with Microsoft Office, Windows 98, and Internet Explorer Web browser for their home computers.

The move by IU See related story: 
Microsoft college deal shaky signals a trend in how universities are beginning to make high-tech procurements, a promising sign for companies such as Microsoft, which can sell a huge suite of products to a built-in audience. And Microsoft is working on similar contracts with other, yet-to-be-named universities.

Legal experts say the agreement with Indiana is fair game. In the long run, however, such large-scale, sweet deals for higher education could put some unwanted attention on Microsoft with regard to the growing antitrust scrutiny surrounding it.

"This type of agreement doesn't directly implicate any of the issues in the litigation [under way] now," said Rich Gray, an antitrust and intellectual property attorney for Bergeson, Eliopoulos, Grady & Gray. "Here we have a willing customer happily accepting an agreement from Microsoft."

But Microsoft's ability to offer products ranging from its server software to its Web browser allows it to easily dominate universities' technology infrastructures, he added.

Moreover, it may not be practical for universities that make huge contract purchases to buy from other vendors, which worries Microsoft's competitors.

"As universities aggregate the items they want to purchase to get a discount, then what incentive is there for them to support other products?" asked Peter Harter, global public policy counsel for Netscape Communications.

"The 18 to 24 age group is a highly desirable demographic," he added. "They don't have money now, but their purchasing will be influenced by what they learn and see in college. If all you see is Windows at the server, desktop, and browser level, how are you going to know anything else?"

Microsoft's moves in the education market are no doubt being watched. For example, state lawmakers have stalled a controversial ten-year deal that would make the California State University system a business partner with the software maker and four other technology companies. The proposal has been highly criticized by some students and faculty, who say the deal will limit choice.

Another major concern is that Microsoft will be able to spread its brand to students and faculty at home through a school-provided CD-ROM with Internet access software that includes Internet Explorer but not Netscape's Navigator browser.

Like backers of the California Education Technology Initiative, or CETI, Indiana University officials insist that other platforms and software will be supported at its campuses.

"No one is going to be compelled to use Microsoft products if they don't want to," said Erik Novak, a spokesman for the university. "In fact, people prefer Netscape here."

Navigator will remain on the desktop at schools, but it is unclear if upgrades and technical support for Netscape products will be provided by the university for the long haul.

Indiana University forged the relationship with Microsoft to offer students and staff software in the same capacity as it offers other educational materials. The university also wants graduates to be proficient in the most popular computer programs before they enter the workforce.

The university's licensing agreement with Novell expires in July and will not be renewed. But Novak says the university already had made an infrastructure decision to move to Windows NT. "Students were already using Microsoft products here," he noted. "Non-Microsoft products will still be supported."

Microsoft insists that it has a right to compete for education dollars as universities expand their high-tech capabilities.

"It's the first deal of this scale for Microsoft in education," said Aleisa Spain, director of Microsoft's higher education unit. "It's a very large commitment on Indiana's part. They are just on the forefront of what will be happening in higher education over the next three to four years."

The software maker is not concerned about any antitrust probes into its activity in the education space. "Microsoft is being closely watched in all areas," Spain said. "We are not forcing any exclusion of our competitors."

On the other hand, Microsoft rivals and legal experts say its deals with universities should be scrutinized for possible monopolistic abuse.

"By doing these deals Microsoft is effectively prohibiting anyone else from entering the market," antitrust attorney Gray said.

"Once [universities] have purchased all these products, there will be tremendous resistance at the purchasing and support levels to bring in other products," he added. "This is something that warrants more antitrust scrutiny because no one else can do it."

Foes will use Microsoft's bid for the education market as ammunition in their quest to nail the company for alleged anticompetitive practices, said Bill Kovacic, an antitrust professor at George Mason University School of Law.

"Competitors such as Netscape will try to identify the educational market as a discrete area of concern," he said. "The theory would be that Microsoft is attempting to begin a long-standing relationship with this large customer base."

The wheels already are turning at Netscape. "It's worth watching to see how this will work," Netscape counsel Harter said. "It's a very ripe area to observe to see what examples we can draw."