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Wake up and smell the backlash: Microsoft reacts to Licensing 6.0

Backlash from the unspeakably unpopular Licensing 6.0 has moved Microsoft to work on incentives for small-and-medium-sized businesses.

REDMOND, Wash. -- Microsoft Corp. will adopt some licensing incentives this fall that are aimed at small-and-medium-sized business (SMB) customers, many of whom took the biggest financial hit when converting to the company's Licensing 6.0 program.

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  • Rebecca LaBrunerie, Microsoft's licensing program manager, declined to provide details about the SMB program, except to say that the SMB market will see financial incentives that were unseen in Licensing 6.0.

    The move to Licensing 6.0 was a marketing disaster for Microsoft because it infuriated customers who believed that they would be forced to break the bank to buy software which they weren't even sure they wanted.

    Microsoft could hear the outrage.

    "It was a wake-up call," LaBrunerie acknowledged. "We not only have to recognize that we have competition, but we have to react."

    One response from Microsoft has been the quiet formation of a task force of employees whose job is to help the company win back customer loyalty and trust lost to the new licensing plan. The task force was spearheaded by Microsoft Chief Executive Steve Ballmer in the months leading up to the August 1 deadline.

    The team, which is comprised of employees from every product group, will also issue monthly progress reports to Ballmer that outline the ways that each group is reacting to its competition. "It's a top priority," LaBrunerie said.

    Though Microsoft won't say how many customers signed Licensing 6.0 contracts, plenty of customers have snubbed the program. A recent TechTarget poll that drew nearly 1,000 readers showed that nearly three-quarters of those who voted have not signed a new licensing agreement.

    In a June interview with CRN, Ballmer publicly admitted that the company "blew it" when it came to rolling out the program. LaBrunerie blamed customer confusion and misconceptions about the program on a combination of marketing missteps, a pile-on by competitors taking advantage of those mistakes, and the press repeating those mistakes.

    But customers said they are not angry because they felt misinformed. They are simply ticked off because they believed that they were bullied into writing fat checks for an expenditure that was totally unplanned.

    "I was forced to spend an untold amount of money I didn't want to spend because we weren't ready to upgrade," said Scott Saunders, director of system technology at Paxson Communications Corp., a West Palm Beach, Fla., TV network. "This cost us a lot, and during a budget crunch money counts."

    Many IT managers said they planned to sit tight and watch as open-source software, like Linux, and desktop products, like Sun's StarOffice, evolve rather than sign new contracts. With Office 11 coming out next year, Microsoft needs to earn loyalty while giving IT managers some compelling reasons for upgrading, LaBrunerie said.

    For the most part, Microsoft has stayed cool in all the heat. In addition to its ongoing antitrust battle, Microsoft is trying to move up-market and get its back-end server software into large enterprise accounts. Many IT administrators have their own prejudices as to whether or not Microsoft server software can deliver.

    Also, as a large and favored target by hackers, the Windows platform has been a security nightmare for many Windows administrators. Late last year, Microsoft Chairman Bill Gates launched the Trustworthy Computing Initiative, a lengthy and ongoing process involving code scrubbing and product re-assessment that has already resulted in more than a few product delays.

    LaBrunerie said plans for Licensing 6.0 had been in the works for about two years -- designed before the antitrust suit was in full swing and before the economy soured. LaBrunerie said Licensing 6.0 had at least two major problems. First, the deadline was too short for most customers. Microsoft really needed to give everyone more time, say, about 15 months or the length of a budget cycle. Companies also needed time to take a proper inventory of their IT gear. "We assumed [customers] knew their inventory," she said. "But people didn't know their inventory at all.

    The second problem was how the company did -- or rather did not -- get its message out. Microsoft didn't properly explain the Software Assurance program when it was announced, she said. Software Assurance is the upgrade portion of Licensing 6.0.

    Analysts and customer agree that what Microsoft should have done is put a program in place that rewards customer loyalty. Analysts believe that Licensing 6.0 has put little value on the customer commitment. "Customers should get heavy discounts for locking in," said Peter Pawlak, an analyst at Directions on Microsoft, a Kirkland, Wash., consulting firm.

    Pawlak said customers also deserve more advanced knowledge of what products Microsoft is planning to produce on a schedule -- so they know what they are going to get and when. That sort of information is practically non-existent in Microsoft's culture. "For customers, there's lots of risk and little reward, and customers are rightly indignant that they have to swallow this," Pawlak said.

    "I'd like to hear them come out in the press, say they made a mistake and they didn't do enough research," noted James Hirtzel, a computer support manager at Alza Corp., a Mountain View, Calif., medical equipment company. "And that they'd like to redress the issue."

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