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Microsoft reportedly working on licensing revamp

(First of two parts. Click here to read part two.)

Negotiating a software license agreement with Microsoft is a complicated process, and not one for the faint of heart. But armed with some critical knowledge, enterprises can get a good deal, according to a self-professed "licensing geek" who has sat on both sides of the table.

Scott Braden, an independent consultant based in the Dallas area, recently released the e-book "Microsoft License Secrets." From 1994 to 2002, he worked for a major Microsoft large account reseller (LAR), received formal licensing training from Redmond and had a hand in "hundreds" of enterprise license deals.

In the first of a two-part interview, Braden talked about how to analyze a Microsoft offer, where Upgrade Advantage customers are heading and the software maker's licensing program plans for 2005.

Scott Braden
Scott Braden
What's the No. 1 piece of advice, aside from buying your book, that you could offer to a customer preparing to negotiate a volume license agreement with Microsoft?
Invest more time in doing the analysis, both of your current state and of Microsoft's offer. Let me give you examples of both. Most companies haven't spent enough time understanding what licenses they own. When they retire PCs, they are not reallocating those licenses where it's legal to their current pool. So, they are basically buying the same licenses over and over. If they just spent a little time going back and understanding the rules and applying those rules to their environment, they are probably going to find that they own more licenses than they think they do.

The second piece [of advice] is, spend more time analyzing Microsoft offers. I was talking to a client last week who was in negotiations … and he went back and there were actually seven distinct offers in writing from Microsoft. And he said there was really no way to tell, apples to apples, how good the offers were. After spending some time looking at it, [the client realized] there wasn't really any difference in the offers. They were just shuffling the 'meat' around, so to speak.

So, I think customers don't do enough upfront work on their own to know what they've got, and their negotiating position. Secondly, they don't take the time, or have the inclination, to really drill down and analyze Microsoft's offers and take them apart from a cost-benefit perspective. Do you see any other major Microsoft licensing trends?
Yeah. The rumor is that Microsoft has retained a consulting firm to redo their licensing [program]. They're working on it now and they're going to release something in early '05. And I think it's going to be more complex, and I think it's going to be another price hike. I don't think they're ever going to move in the direction of simplification.

The rumor is that Microsoft has retained a consulting firm to redo their licensing [program].

Scott Braden, consultant

Does that mean companies should deal now?
Why not go now? Because you can always renegotiate a Microsoft contract. Is it that easy to do?
They've all got 30- or 60-day bailout clauses. There's some caveats, like with an Enterprise Agreement, you have to come up with some cash to buy out of it. But don't wait if you can get a good deal now. Is it a buyer's market for Microsoft products?
Yeah, definitely. Why so?
The big picture is, [Microsoft's] revenue is flat. I mean they've already announced this is the first year they're [at] less than 10% revenue growth. It's well publicized that they want to move from a transactional revenue model to a streaming revenue model -- [or] subscription -- call it what you want to. And that's not just talk. They actually 'incent' their reps and they 'incent' their resellers to sell based on that.

If you're a customer, the big question is: [Is] a subscription [program] like Software Assurance worth it? Are they really going to upgrade anything they want to buy within three years? I submit that that's the wrong question to be asking. The real question is: What do we need to get and how can we leverage Microsoft's internal motivations to get a better deal?

For example, if Microsoft wants to sell me SA, and I don't think it's a good deal at the current package price, why not go to them and say, 'Look, here's a better deal: You get SA, I get what I want, and everybody's happy.' What are the options for customers whose Upgrade Advantage deals expired this year now that the program has ended?
I can tell you the main thing is that Microsoft is going to push them toward Enterprise Agreements. The options are: Do nothing; sit with what you've got. Buy an Enterprise Agreement. Or just go to an a la carte type of thing like [a] select [agreement], with or without Software Assurance. As far as which one is the right choice, I couldn't tell you without looking at the particular customer.

For more information

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Does trying to get a custom deal work for Upgrade Advantage customers, too?
I would say so, especially from an accounting perspective, [for] the fact that Microsoft has been booking this recurring revenue all this time, and now this piece of it is going to be missing from their books going forward. The reps, the district general managers and Microsoft corporate need to have something to replace that recurring revenue stream so they can show it to Wall Street.

Most companies [in this position] that I've talked to say Microsoft already approached them in the spring and said, 'Let's renew now and here's an offer.' So, the ones who haven't already signed up again have great negotiation positions. Microsoft's software bundling packages are pretty confusing. How can a customer figure out which one is right for them?
[By] looking at what you really need. One of my favorite examples is Office versus Office Professional. How many people really need Access, or even PowerPoint? Name the product. That's a balancing act in technology. You don't want to have too many images floating around on your desktops. That's a nightmare for your desktop guys.

I would tell them as a rule, though, don't accept a bundle. Take it apart and look at each application independently.

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