Microsoft seeks to simplify volume licensing yet again

There are perks to be had from Microsoft's new volume licensing program, but there are also some gotchas.

Microsoft is eliminating some of the complexities within its volume licensing program that have long been bones of contention for enterprise customers.

The biggest of these is the elimination of forecasting. Under the existing Select License volume licensing program for mid-to-large enterprises, IT must guess how much software it will buy annually over a three-year period. Based on this forecast, customers are lumped into categories according to how much of a discount they will receive.

Under a new Select Plus program to be introduced in the fall of 2008,

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customers will receive discounts based on what they actually buy. Select plus is a new program. It does not replace Select License.

"If you over-forecasted what you were going to buy in your first year, you would still get that bigger discount, even if you didn't reach your forecast. So that bigger discount is gone under [Select Plus]," said Paul DeGroot, an analyst at Directions on Microsoft, a Kirkland, Wash.-based consulting firm.

Another change is that if customers opt to buy a Software Assurance [SA] maintenance agreement under Select Plus, they will be required to buy a three-year SA agreement for each new purchase. Under Select License customers could buy a one-year SA agreement on a new purchase if they were in the last year of an existing three-year contract, for example.

An SA agreement is 29% of the cost of the license per year on desktops, and 25% on servers.

DeGroot said there is a downside to the three-year mandatory SA agreement with each new purchase. If you buy a product, such as SQL Server 2005, and SQL Server 2008 comes out within the time period of your current SA contract, you lose out because you don't get a discounted SA rate on the upgrade, for example, he said.

Under these new buying terms, DeGroot predicts that departments within companies may delay purchases until other departments buy licenses so they can get bigger discounts. "The more purchases you make the bigger the discount, so I see affiliates or departments waiting for others to buy before they do, which could delay purchases overall," he said.

Others advise enterprises to buy in bulk if they join Select Plus.

"Hold off and delay your purchases until the order is big enough so that you can get the cheapest prices," said Duncan Jones, an analyst with Cambridge, Mass.-based Forrester Research Inc.

Software licensing woes

Microsoft has been tweaking SA in various ways for years in response to customer complaints about the program. "Customers told us that they don't like the fact that the cost [of SA] changes year to year because it makes it difficult for them to budget," said Chris Blackley, director of Microsoft's worldwide licensing and pricing group. "So it is predictability of cost that we are responding to [with the SA term change].

More than 600 customers were asked to review the new program and make recommendations before it was introduced, Blackley said.

A significant benefit of Select Plus is the master purchasing agreement. Gone are the days that each department or affiliate in a large organization has to negotiate its own contract.

That approach has been replaced by a single customer ID that accounts for all corporate purchases. So customers will be able to see who is buying what and where that asset resides under the central agreement, and Microsoft automates the discount levels based on overall purchases.

[Select Plus] works against you if you just buy a few licenses
here and there.

Duncan Jones, Forrester Research Inc.,

"As soon as the customer hits the better price level, we change that level and [the company] gets the better discount," Blackley said, adding that customers were not automatically bumped up to a higher discount under the forecasting model.

Jones said many of his clients have long complained about having different business units attempting to forecast what they are going to buy. "Now they can say go ahead buy what you want because you'll get the volume discount. But it works against you if you just buy a few licenses here and there."

With new tools, customers also get a single view of all their purchases, a feature that Christopher Steffen, principle technical architect with Kroll Factual Data, a Loveland, Colo., subsidiary of risk consultancy Kroll Inc., said he believes it will save his company money.

"It's difficult to keep track of every piece of software that you buy, so if they can make it easier for me to track, then I think it will at the minimum reduce our compliancy costs," Steffen said.

Microsoft is also eliminating the three-year renewal time frame for licensing agreements and replacing it with a perpetual one. Blackley said it removes the need to negotiate new terms and conditions every three years.

But, a perpetual license actually adds more complexity to an already complex program, said Directions on Microsoft's DeGroot. "With no set time to get out of the program, like the third-year anniversary, and with all these different affiliates buying three-year SA agreements, it will be harder I think to budget and align payments," he said. "Having no expiration date, to me, seems to be more complex."

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