Microsoft's $844 Million Software Giveaway To Nonprofits: Pure Charity Or Cheap Marketing?

from the free-now-pay-later dept

Microsoft has just released its 2011 Annual Financial Report. But alongside that document's dry facts about its $69.9 billion turnover, and the operating income of $27.2 billion, Dj Walker-Morgan pointed us to a more interesting publication, Microsoft's 2011 Citizenship Report:

We release our Citizenship Report at the same time as our Annual Financial Report to give our broad base of stakeholders a full view of Microsoft’s financial and non-financial performance. Corporate responsibility means more than returning value to shareholders – it means engaging with stakeholders to address our responsibilities in the areas of environmental, social and governance issues. We believe all corporations have, as part of their license to operate, a responsibility to contribute positively to society on a global scale. To quote our company’s founder, Bill Gates: "It takes more than great products to make a great company."

So let's just take a look at the things Microsoft has been doing to "contribute positively to society on a global scale". Here's one detail:

We have increased corporate charitable giving year-over-year since fiscal year 2008, despite economic challenges. Our employees volunteered more time—more than 380,000 hours in the U.S. alone. We also contributed more cash and in-kind support to nonprofits—$949 million globally.

That's nearly $1 billion of cash and in-kind support to nonprofits – a big number. There's a web page devoted to these activities, with this paragraph giving some more information:

In FY2011 we donated more than $844 million in software to 46,886 nonprofits in 113 countries/regions.The value of software we have donated globally since 1998 is more than $3.9 billion. The FY2011 value of software donated now includes employee software donations; previous years’ in-kind giving numbers do not.

This means that of the $949 million dollars "contributed" to nonprofits, $844 million -- 88% – was actually software, presumably Microsoft's, since it's unlikely it went out and bought it from competitors.

What's harder to judge is how much that $844 million worth of software actually cost Microsoft: the specific phrase used is "fair market value". This has quite a well-defined meaning in US tax law:

The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.

Now, I'm not suggesting that the people who put up the web page about Microsoft's contributions to nonprofits were following that definition exactly. But equally, it seems likely that the gist is the same: it's a kind of rough price that you'd usually find in normal markets selling the products in question. And those prices are almost certainly well above the cost of manufacturing, especially if the software was delivered online, or if multiple installations were permitted.

So the actual cost to Microsoft of that donated software is likely to be only a small fraction of the $844 million "fair market value" cited. This inevitably tempers our admiration for Microsoft's ten-figure generosity somewhat.

But there's something else. Microsoft wasn't just handing out a bunch of any old products: it was giving away mostly Windows and Office, judging by a table showing a breakdown by region. Both of these are well-known for the lock-in effects they produce: once you start installing applications and creating documents with them, it's quite hard to move to a completely different platform like Apple or GNU/Linux. Most people don't even try.

So these free copies not only cost Microsoft considerably less than the $844 million figure it used to calculate that near-billion dollar total for its corporate brochure, but it wasn't really altruistic at all. With hundreds of thousands of copies of Windows being distributed (417,030 were supplied for refurbished computers alone), there is a very high probability that Microsoft will be benefiting financially – and not just in terms of goodwill -- from upgrades and follow-on sales for many years to come.

Making copies available at zero or very low prices is something that Microsoft has done time and again whenever there was any danger of customers "defecting" to open source. For example, in 2009, Russia planned to deploy free software throughout its education system. That didn't happen, in part because Microsoft offered to license Windows for $30 a copy (article in Russian.) It's part of the rough and tumble of the highly-competitive software business.

Still, it's a little rich for a company as profitable as Microsoft to try to dress this up as “corporate charitable giving.” It's really nothing of the kind: it's marketing, pure and simple, and Microsoft should be big enough to describe it as such.

Follow me @glynmoody on Twitter or, and on Google+

Filed Under: charity, marketing, software
Companies: microsoft

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  1. icon
    BillCurnow (profile), 7 Oct 2011 @ 11:10am

    Re: TechSoup

    Say what you will about being locked in, etc, but the TechSoup program is a wonder tool for non-profits. TechSoup acts as a clearing house matching qualified non-profits and schools with software publishers. If the organization meets the requirements put in place by the publisher they can purchase software at deep discounts, often free, while paying TechSoup an administrative processing fee.

    Microsoft is obviously one of the larger publishers in the TechSoup system, and they have restrictions in place to make it harder for individuals to game the system. For example, you can only purchase 1 a year and, if I remember correctly, you can only purchase 5 SKUs at a time. Need one package 3 months later? You'll need to wait another 9 months.

    The TechSoup system is a bit inconvenient, but the benefits to the non-profits make it worth the hassle. Several years ago the non-profit I volunteer with needed to purchase 15 copies of Office Professional Plus 2007. It cost us a total of $300, or $20 per computer. That's real savings, meaning lower IT costs and less money diverted away from service delivery. Those were the savings for a single office, but we have over 800 offices in the U.S. The savings start to add up to real money after a while.

    The point of this article, however, is whether Microsoft is right to state that they donated $844M worth of software when it cost them far less to do so. Frankly, it doesn't matter. The IRS says that the difference between what they could have sold the software for and what they sold it for is the value of the donation, not the difference between their cost and the sale value. It might only cost (hypothetically) Microsoft $50 to produce a $400 software program, but if they sell (or donate) that program to 501(3)c for $0 the IRS allows them to count that as a $400 donation, not a $50 donation. If they sold it for $50 it would be a $350 donation.

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