A New Chess Board

CIOs say that they are tired of being pawns when it comes to negotiating big technology contracts with vendors.

October 24, 2011

PHILADELPHIA — There was no occupation of the exhibit hall at Educause 2011. Colorfully branded scaffoldings were not toppled from their foundations. Sales reps and hired entertainers were not chased from the premises while being pelted from behind with their own swag. No. The conference attendees, many of them involved in technology purchasing decisions at their home campuses, wandered through the corporate bazaar that had been erected in the middle of the Pennsylvania Convention Center; inquiring about products, submitting raffle tickets for free iPads, and generally allowing themselves to be charmed.

Yet beneath the pageantry, there was tension. The symbiosis between higher education and the tech companies that serve it has been corrupted, says Bradley Wheeler -- CIO for the Indiana University System -- by what he has described in interviews as a "highly unbalanced" market of buyers and sellers. The companies, by consolidating their power and being secretive about the prices they negotiate with individual clients, have higher education "over a barrel" on pricing, he says. Wheeler, who is also a business professor at Indiana, said he does not begrudge the companies for trying to grow and maximize their profits. But in order to "rebalance the chessboard," he said, universities would have to figure out how to consolidate their own power as buyers.

In August, after the higher-ed tech industry’s two biggest companies, Datatel and SunGard Higher Education, announced they were merging, Wheeler made this point to his colleagues on a listserv for CIOs hosted by Educause. The post, which Wheeler titles "Our Chessboard," garnered more than three dozen responses. A chessboard-themed session was soon added to the docket for the annual conference.

And so it went that last week a group of campus technologists packed into a meeting room, about 100 yards down the corridor from the exhibit hall, to talk about how they might force the companies to bring those prices down. Wheeler played emcee. "Markets ought to do great things for us," he said. "There's lots of offers to buy, there’s lots of offers to sell, people keep building a better mousetrap, and things come and go and evolve over time.

"But you know, in higher ed that really hasn’t been our experience. We’ve observed that a lot of categories of software and services tend to consolidate over time… It seems to me sometimes like watching a B-grade Hollywood script -- just the same movie playing out, over and over, in different categories of things that are critical to us."

Can Colleges Join Forces in Pricing?

One obvious solution for the consolidation of supply, Wheeler noted, was the aggregation of demand: universities could pool together and cut big, group deals with tech companies. He pointed to a recent deal in which Internet2, a consortium of 235 colleges that was originally formed around a high-speed computing network for research, brokered group discounts for its members from Hewlett-Packard and Box.net for cloud computing services. (Wheeler, who is one of the first CIOs to opt into the deal, said it took Internet2 staff a mere 62 days to negotiate a master agreement with Box.) Another consortium, called the Common Solutions Group, has been negotiating with companies that provide cloud-based e-mail services (among other applications) for a common contract that would save both sides the headaches of hammering out individual accords.

Nick Tate, chair of the Council of Australian University Directors of IT (CAUDIT), said the model of "demand aggregation" had worked "tremendously" in Australia, where he said universities in the CAUDIT consortium had been negotiating group tech deals for two decades. "We’ve found our colleagues here [in the United States] rather timid in your approach to vendors," Tate said.

"Vendors don’t always behave particularly well," added Richard Northam, general manager of CAUDIT, who was also in attendance. In such cases, Northam said, the CAUDIT institutions might collaborate to give a competitor a foothold in the market. "It’s a wonderful way of getting some behavioral modification," he said. "Vendors who say that they simply cannot cut a deal with us all of a sudden are bashing down the door."

(If there were any vendors present at the session, they held their peace.)

But aggregating demand on the "buy side" is easier said than done.  Individual campuses can be particular in their needs, and cutting group deals might not jibe with institutions that approach the notion of demand aggregation too conservatively.

Shelton Waggener, the CIO at the University of California at Berkeley and one of the leaders of the Internet2 deal with Hewlett-Packard and Box, said tech purchasers are going to have to become less conservative if they hope to leverage their collective interest in low-cost, university-friendly deals with vendors. "We don’t want to go through our procurement departments and end up with a six-week bureaucracy for one signature internally any more than our vendors do," Waggener said.

Wheeler said the completion of the Internet2 deal was contingent upon some universities learning to live with a deal that did not fit all their criteria. "I heard a number of conversations in the process of the Box.net deal, saying, 'Oh my God, this is imperfect,' " he said. "Which is right, we’ll grant you that one. But the alternative is your institution saying, 'We’re not going to sign an agreement, by golly, we’ve got these 17 concerns.' "

To the extent that universities’ hemming and hawing is driven by legitimate concerns about compliance with the Family Education Rights and Privacy Act, and other data security issues, Wheeler and Waggener said that if universities do not get deals done, students — and even faculty and staff — might end up going around them and using non-sanctioned services to exchange sensitive data.  "Then you’re going to end up playing I.T. cop after the fact," said Waggener. An "imperfect" deal "is probably much better for institutional risk mitigation than otherwise," added Wheeler.

If universities are unwilling to make concessions that would allow them to negotiate deal as a group, there is another way to consolidate their power as buyers, said Waggener: making individual deals more transparent.

Ending Price Secrecy

"Aggregation is one path, but information aggregation is even more powerful," he said.

There have been similar calls for collective transparency in the library world, where the Association of Research Libraries has called on its members to refuse to sign nondisclosure agreements with publishers in hope that having that keeping that information in the public eye will prevent publishers from exploiting the ignorance of individual libraries. (Cornell University's library recently announced its intention to follow the association's advice.)

Waggener said university CIOs and procurement officers might do well to heed this tactic.

"The fact that we all agree to these terms — that say ‘I won’t disclose my agreement' — helps no one," Waggener said. "It actually doesn’t help the vendor, because their cost of sales is really high," he said. And it doesn’t help the universities, because institutions cannot use the prices their peers got as a negotiating lever. The only person nondisclosure agreements help, Waggener said, is the salesperson.

"If you think you’re getting a better deal because you’re signing a nondisclosure [agreement], I would argue that you’re not," he said. If a CIO negotiates for a lower price in return for silence, he might "feel special because at least [he] got a deal nobody else got," said Waggener. But if everybody decided to eschew such conditions, he suggested, universities would end up in a better bargaining position overall.

"Higher ed is better off understanding vendor pricing and vendor pricing policies and contracting terms over time," said Vicki Tambellini, president of the Tambellini Group, which advises universities of I.T. contracts.

Vendors are constantly adjusting their prices, which makes it difficult to get an idea of what others are being charged from data that is incomplete and out-of-date, Tambellini said.

"You only get the information that the salesperson wants you to have, and your 'best deal' may not actually be the best deal” she said. “If you’re armed with the information and data about what the best deal really is, then you have the leverage. So I don’t really think you have to be in a buying consortium; you just need to have the information."

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