Microsoft license changes anger managers

Microsoft Corp. gave customers a temporary reprieve earlier this summer when it postponed some of the controversial volume license changes that had been scheduled to take effect Oct. 1.

But even with deadlines extended to the end of February [see story – Microsoft extends Office license upgrade deadline], some IT managers are still having a tough time stomaching the changes announced in May particularly since new licenses or product upgrades may cost them more money.

Several of the 20 IT managers polled by Computerworld in the United States this month said they haven’t decided what to do and feel pressured to make decisions at a time when they’re dealing with more pressing priorities and leaner budgets.

David Booth a regional director for CIPS (Canadian Information Processing Society) in Northern Alberta said Canadian users aren’t too happy either with the changes by Microsoft.

Booth said, in his role as both a regional director of CIPS and the director of IT with the Workers Compensation Board – Alberta, he has encountered customers who are frustrated because of the increase in cost and the lack of consultation on the part of Microsoft.

In an interview, in May 2001, Microsoft Canada’s director of channel sales David Willis told IT World Canada the agreements are modified every four years and the changes in the Enterprise Agreement reflect Microsoft’s plans to be a better enterprise player [see story – Microsoft revises corporate licensing scheme].

“We want to be solutions oriented rather than just a provider of products, ” Willis said.

As part of Microsoft’s .Net strategy the company wants to start encouraging customers to sign Enterprise Agreements and volume licensing agreements, Willis said.

“When you look at the customers that it affects only 40 per cent (based on internal Microsoft information) of our customers will be affected,” Willis said.

For 50 per cent of the customers who have a volume license agreement there will not be any change, Willis said as they are on an open or select agreement (a discount program), however for 20 per cent, mainly smaller customers who don’t upgrade much, it could be more expensive, Willis noted

However, it is the lack of consultation that has irked many of Microsoft’s customers, said Booth.

“We can appreciate what Microsoft is trying to do and that they want to be more like Oracle or Peoplesoft but there was no consultation on this,” Booth said. “It’s like they said: ‘here’s the date we’ll be collecting our cheque’,” he added.

“I’m upset that Microsoft’s trying to squeeze more money out of us and that it’s taking a lot of time and my energy and my peers’ energy to understand all of this,” Jeffrey Ratner, assistant vice-president of distributed engineering at Enfield, Conn.-based Phoenix Home Life Mutual Insurance Co. told Computerworld.

“I was disappointed in the program itself and how it was proposed,” said Jon Ricker, president and CEO of Limited Technology Services, the IT arm of The Limited Inc. and Intimate Brands Inc. in Columbus, Ohio. “There was not enough advanced communication.”

Ricker said that IBM Corp., another large technology partner, typically contacts his company a year in advance of making major pricing or licensing changes “so we have time to adjust our budget.”

“I think Microsoft continues to struggle with this whole enterprise thing,” said Ricker, who oversees more than 30,000 PCs.

Bill Landefeld, vice-president of worldwide licensing and pricing at Microsoft, said the company is “getting a lot of very positive feedback” and “some mixed feedback” as it works to educate customers and partners about the often-complicated changes.

Landefeld said his company launched the changes to simplify licensing, ease software administration, streamline its sales process and provide customers with more flexibility and choice, including a new subscription option.

Analysts and users, in contrast, have viewed the move as a less-than-subtle attempt to induce customers to upgrade more often and provide Microsoft with a more steady and predictable cash stream as revenue growth wanes.

But many corporate users have bristled at the volume license and upgrade changes, and their uneasiness could have consequences for Microsoft. Several IT managers warned that they may upgrade less often or consider looking more seriously at competitors’ products rather than pony up for potentially costly licenses or upgrades.

“If Microsoft continues to make my choices narrower and life tougher for me, they’ll see exactly how little monopoly they really do have over this market, and we’ll exercise our choices to go somewhere else,” said Jim Prevo, CIO at Green Mountain Coffee Inc. in Waterbury, Vt. Prevo added that he had never even thought about considering alternatives until he was confronted with Microsoft’s licensing changes.

In an interview with IT World Canada Rob Enderle, with Giga Information Group Inc. in Santa Clara Calif., said he has heard complaints from Canadian government agencies that are not happy with the changes.

“The way this is done it appears to many users that Microsoft had a revenue problem and changed the licensing program to make up the shortfall,” Enderle said.

The timing could not have been worse as the IT industry scathed by the economic downturn and laying off staff now has to digest the price hike from Microsoft, Enderle pointed out.

“Now its like there are two things you want to avoid malaria and Microsoft,” Enderle said. “The timing of this couldn’t have been worse as IT managers struggling to juggle a budget and laying off staff are now hearing from Microsoft when they ship out software: ‘oh by the way we’re dropping by for a cheque’.”

Government IT departments face even more angst in dealing with these changes, Enderle said, as they have to budget one year in advance and they are constantly required to cut costs.

One of Giga’s clients, a US$2 billion insurance company, is yanking out everything but Microsoft’s desktop products in response to the changes. In an earlier interview with IDG News Service Enderle said that among the clients who have contacted Giga, about 30 per cent are “really upset,” and only one is happy. The latter is an investment house that will see its costs go down as a result of discounts available to Enterprise Agreement holders. “This is a company who chases technology,” Enderle noted. “They always install the more current stuff.”

An Enterprise Agreement entitles a customer to a standard set of Microsoft products on all of the PCs licensed through it, as well as access to any upgrades released during the contract’s three-year term. Such agreements typically have found favour with large companies that use many Microsoft software products and don’t want the hassle of managing their licenses.

Enterprise Agreement holders, in general, aren’t bellyaching, since Microsoft imposed few changes on that top customer group. To entice more customers to consider the more costly Enterprise Agreement option, Microsoft even lowered the qualification threshold from 500 licenses to 250, effective Oct. 1.

But many midsize and even some large companies continue to hold the next level of license: the Select Agreement. That group is raising the most complaints.

That’s not surprising, since Select Agreement holders are seeing some of their least-expensive upgrade options, including the popular version-upgrade program, eliminated as of Oct. 1 in favor of a Software Assurance plan, which Landefeld said would give users a more predictable way to license software and administer upgrades.

Under the Software Assurance program, users must pay on an annual basis 25 per cent of the license fee for any server product and 29 per cent of a desktop product’s price for the right to upgrade to the latest available version of the software. To qualify, a company must use the current version, a provision that isn’t sitting well with some IT managers.

“Honestly, you’re looking at paying the money every year for Software Assurance, and to me, that’s like they’re dictating to you when to upgrade,” said Jamie Ratliff, a technology administrator for the city of Victoria, Texas, which has a population of 62,000. “We don’t upgrade that fast. We’re on a four-year cycle to upgrade.”

Ratliff is encouraging aggrieved parties to support a group he has founded called Microsoft Users Against Software Assurance. As of Aug. 16, 59 people had signed a petition at since its Aug. 4 launch.

One of the ways that users can pave the way for a move to Software Assurance is to buy into the Upgrade Advantage (UA) program. UA gives users access to all upgrades within the time frame of their contracts. The UA option had been scheduled for elimination Oct. 1, but in response to customer requests, Microsoft extended the option until Feb. 28.

Landefeld said he doesn’t anticipate further changes. “If you keep tweaking a program like this, it gets very complicated very quickly,” he said.

Many users are evaluating their Enterprise Agreement and Software Assurance options. But for others, the prospect of upgrading frequently enough to make those options cost-effective isn’t appealing. Some said they plan to buy any new software licenses they need when they upgrade to new PC hardware.

Steve Quiett, an information systems architect at Barney & Barney LLC, an insurance broker in San Diego, said Software Assurance would make his costs soar by $300 per PC. With 175 PCs, that’s $52,500.

“What I get for that is not to have to go through the activation wizard for Office,” Quiett said. “I report to the CFO, who looks at me and says, ‘What are you, nuts?’ “

Quiett said he would buy new PCs every three to four years and re-license any software he needs rather than go for the Software Assurance option.

CIPS’ Booth said that based on his own organization’s study of the new cost licensing agreement it was not financially viable to go the maintenance agreement route if one had no plans to upgrade within three years. However, Booth added that in the IT trade upgrading is a necessary occurrence.

“[Unfortunately] you don’t have a lot of choice for any organization where Microsoft is entrenched,” Booth concluded.

Microsoft Canada in Mississauga, Ont., can be reached at CIPS can be reached at Cambridge, Mass.-based Giga Information Group Inc. is at

— With files from Stewart Brown of IT World Canada.