Microsoft Corp. has blinked twice on full-scale implementation of its new volume-licensing program, but the Redmond, Wash.-based software giant won't flinch a third time, according to industry experts.
"If I were in Microsoft's shoes, I would not want to revise it one more time," said Gartner Group analyst Alvin Park, referring to Microsoft's Volume Licensing 6.0 program. "I don't think Microsoft will make any other changes until after the July 31 (2002) deadline."
As the deadline approaches to either enroll in the controversial new licensing program, or face the prospect of purchasing product upgrades at full price, many companies are choosing to do nothing. Gartner estimates 65% of existing Microsoft customers have not begun to analyze the plan's complex licensing options, a failure that could cost them untold amounts of money down the road.
Another survey, conducted by Information Technology Intelligence Corp. (ITIC) of Boston, Mass., and Sunbelt Software of Clearwater, Fla., published similar findings. More than 63% of about 1,400 respondents in that survey indicated they hadn't scrutinized the plan's implications.
Analysts say Microsoft's inability to explain the welter of licensing terms, options and sketchy pricing is to blame. "I haven't met anyone who understands this," said Laura DiDio, principal of ITIC. "It's very confusing and it doesn't matter what size your company is."
Licensing 6.0 is an annuity-based software-licensing program, similar to a maintenance agreement that users can ink with Microsoft. IT executives have until July 31 to decide whether they want to enroll in the new program and its new upgrade option, called Software Assurance, which is replacing the older Upgrade Advantage option. Users could forgo the three-year Licensing 6.0 agreement in favor of Open or Select 5.0 volume licensing contracts, along with Upgrade Advantage, that will run for two years from date of purchase. Microsoft will continue selling those plans through July 31, 2002. That also is the last day enterprises can fold existing Microsoft licenses into Software Assurance.
Users that don't choose one of those options by July 31 would have to purchase new Microsoft licenses at full price when they do upgrade. Previously, under Upgrade Advantage and other options, Microsoft enabled users to receive new versions of software at their own pace and for a discounted rate. Microsoft unveiled the new licensing plan in May 2000, but twice extended the enrollment deadline because customers complained.
Software Assurance entitles users to buy discounted upgrades as they become available. Analysts say organizations that upgrade every two years could realize a cost savings. Organizations that upgrade less frequently would experience the opposite.
Under Software Assurance, Microsoft will charge enterprises 29% of the list price of client licenses and 25% of the retail price of server licenses. Users must be running the most current software versions available to qualify for enrollment in Software Assurance.
"Microsoft is doing this because it can. Software Assurance is really 'revenue assurance' for Microsoft," says Randy Britton, spokesman for IT asset management firm Tally Systems of Lebanon, N.H.
Rebecca LaBrunerie, Microsoft's program licensing manager, told SearchWin2000 the move was made to simplify pricing and upgrades. "We removed those confusing upgrade options and replaced it with Software Assurance, so going forward you (would) have the choice to buy only the license or the license with Software Assurance," she said.
Switching to Software Assurance could end up costing some enterprises about one-third more than Upgrade Advantage, DiDio said. "It's more expensive, you pay for three years instead of two, and certain things aren't included unless you fight hard to negotiate them back in," she said, including Microsoft's BackOffice, SQL, FrontPage and Publisher products.
Make way for subscription models
Gartner predicts Software Assurance contracts could raise fees as much as 107% for enterprises that upgrade every three years. Park says the breakeven point for upgrading server licenses is about four years, while for desktop products it is 3.45 years.
Still, some enterprises stand to benefit. Denver Water, which supplies drinking water to nearly 1 million customers in Colorado, is among the 35% or so of enterprises to enroll early. The 700-desktop enterprise purchased an Enterprise Agreement under Licensing 6.0 last year, soon after Microsoft announced its new plan. Pam Peschel, business support specialist for the utility, said she has reservations about the cost but has learned to appreciate some of the advantages -- especially Microsoft's compliance monitoring feature for tracking where software is installed on a network. "We have a paper trail on reinstalled software that's just unbelievable," she said. "It's a lot easier to do a count of installs and reinstalls (using Enterprise Agreement) than it is to do paper tracking."
The sluggish response rate to Microsoft's 6.0 program could work in users' favor. DiDio says customers who are in compliance with existing Microsoft licenses may have the upper hand when bargaining. Microsoft is behind on new product initiatives, existing products have not been adopted as rapidly as expected, and licensing revenue has fallen, so Microsoft has incentive to negotiate. "Inertia is Microsoft's biggest enemy," DiDio said.
Microsoft is not the only vendor to change its licensing scheme. IBM and Oracle are enacting similar initiatives, a sign that software vendors are gravitating toward software-leasing models, said Park. "At some point, it will become more attractive for enterprises to rent software than purchase it. We think that's where a lot of software vendors would like to be long term," in five or six years.
As to what Microsoft-run enterprises are likely to do between now and July 31, no one has a good answer. But DiDio has some cautionary words to companies that have been procrastinating. "Just because you may not have the money to move doesn't mean you shouldn't be studying it and getting prepared. That's just plain stupid."
Garry Kranz is a freelance technology writer in Richmond, Va.
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This was first published in May 2002