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Licensing 6.0 and Software Assurance: Who should renew?

It's decision time for many companies wondering whether to renew their volume-licensing agreements with Microsoft.

Microsoft licensing:
A special report

First of three parts.

For some of the very first Microsoft customers who signed software-licensing deals and elected to buy the company's Software Assurance program, now is the time to decide whether it's worth it to sign up again next year.

But more urgently, there are enterprises with expiring two-year Upgrade Advantage licenses that must decide soon whether they want to move to Software Assurance, which is the new version of this program.

When Licensing 6.0 was initially introduced in 2001, customers were caught off guard by Microsoft's Software Assurance program, a system where they prepay a percentage of their license price for a future software release. Many customers said they felt that, if they didn't sign up for Software Assurance, they would lose an opportunity to obtain Windows licenses at a discount. But they also didn't have the ability to request the extra money from their company coffers on such short notice.

Software Assurance is not something that anyone was or is required to buy; Microsoft likens it to buying an extended warranty for a car. You don't need it, but it could come in handy. Software Assurance is built into enterprise agreements, which many of Microsoft's largest customers have, but it is an option for select (volume) and open licenses.

To Microsoft's chagrin, many -- about two-thirds of customers, according to some analysts' estimates -- opted to skip Licensing 6.0 and buy new licenses at the full price when their three-year term expired. During the past year, Microsoft has worked hard to make the program more attractive by adding numerous benefits to Software Assurance, including some coupons for free training, support and online help, which all went into effect in September.

Making a business case

So is the program a better value today than it was on Aug. 1, 2002, when it launched? In some ways, perhaps it is. Some analysts are telling customers to reconsider Software Assurance and the potential of those new features if they are truly put to use.

Julie Giera, a vice president and research fellow at Forrester Research, Cambridge, Mass., encourages customers to do a business-case analysis before deciding whether to accept Software Assurance. Microsoft has spent millions of dollars and lots of time doing damage control since the program went into effect, Giera said.

"I don't think the enhancements will stop," she said.

But for customers who already have purchased Software Assurance for some products, such as Office, the decision to renew remains a gamble. These customers will be covered for Office 2003, due out by the end of this year, but as of now, no one knows when the next version of Office will appear, said Paul DeGroot, chief analyst at Directions on Microsoft, Kirkland, Wash.

"Microsoft is saying they will incorporate a lot of Longhorn into Office, so it looks like it will be a post-Longhorn release, since it's doubtful they will ship simultaneously," he said. The exact date of Longhorn, the code name for the next version of Windows, is still a moving target, but recent estimates have put it as early as late 2005, though more likely sometime in 2006.

"In any case, we likely won't see another version of Office for about three and a half years," he said.

Microsoft promises to 'do right'

Customers with Software Assurance on other programs are in the same boat. Jim Allchin, Microsoft's group vice president of platforms, said in a recent interview with Computerworld that, if customers don't get upgrades with their Software Assurance, Microsoft will "do right" by them.

DeGroot said Allchin's remark only introduces more uncertainty into an already murky program. "Does this mean that Microsoft is going to guarantee that I get an upgrade to Longhorn -- regardless of how long it takes to ship -- if I buy SA on the Windows client or server today?" he said.

But some customers say this situation is no different from what they experience with other vendors. "It's definitely an issue, but it's something that can happen with any vendor," said David Burke, chief information officer with Raycom Media Inc., a Montgomery, Ala.-based broadcasting company. Raycom Media recently renewed its enterprise agreement, which includes Software Assurance.

Burke said he had a similar situation getting a new version of software for his AS/400s. IBM, however, said some elements of the contract involving the hardware were not up to date, so the company was ineligible. Overall, Burke said, it's better to have the Software Assurance as an insurance policy.

Experts agree that it is hard to offer blanket advice to customers because companies' situations vary. For small businesses, buying Software Assurance through the open value program can be helpful because they can spread out payments for licenses over a three-year period.

Is the discount worth it?

On the other hand, small companies happy with the software they have today may not care to upgrade to Office 2003 for a long time. The discount they get from Software Assurance may not be worth it.

On the plus side, if a company has Software Assurance, IT managers can distinguish the technical decision of when an upgrade should happen from the financial decision of whether it can afford the upgrade, since the upgrade is already paid for. "Software Assurance gives IT managers the right to upgrade, whether they want to or not," DeGroot said.

Hardware may also play a role in the decision making. Some of the features of Office 2003 may be dependent on the Longhorn version of Windows. If the hardware requirements for Longhorn are significant, it may just be worth it to start from scratch and upgrade all desktops at one time.

Some customers with large Windows installations, such as Children's Hospital in Boston, didn't bother buying Software Assurance; the hospital opted against the program because it buys new desktops every four years.

"We don't do any upgrading of the desktop OS," said Bill Arrington, a network administrator at Children's. "When a machine has reached its peak, we take it out and move to a new desktop with the latest OS and Office product. It seems to be a cost-effective approach."


Special Report, Part 2: MS licensing message slowly getting through

Special Report, Part 3: Software-license pros emerge as a new IT breed

Article: Users offer mixed reviews of Licensing 6.0 tweaks

Interview: Rebecca LaBrunerie on understanding volume licensing

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