Microsoft licensing model becoming a standard: analyst

It’s been one year since Microsoft Corp. introduced its Software Assurance program. The program requires subscribers to purchase a maintenance plan in which they receive all upgrades automatically as opposed to choosing when to upgrade.

While Microsoft isn’t apologizing for changing its business model, it did, and continues to, apologize for the way it notified customers of changes involved in the infamous Software Assurance program, also known as Licensing 6.0.

“What we did incorrectly was the way communicated to our customers and the way we made the transition to this business model,” explained Rebecca LaBrunerie, product manager of worldwide licensing and pricing at Microsoft in Redmond, Wash.

She said Microsoft failed to emphasize to customers the importance of doing a business cost analysis, and didn’t provide them enough time to decide if they wanted to buy into Software Assurance.

Last year the City of Nanaimo, B.C., decided not to go along with the new licensing program, fearing anticipated cost increases.

A year later it still stands by its decision. The city is now moving toward Sun Microsystems Inc.’s Star Office. “It is a hell of a lot cheaper than Microsoft,” said Per Kristensen, the city’s CTO of the information technology office. The city is staying with the Microsoft operating system for the foreseeable future.

However, the city is “continuing to research” its’ options, Kristensen said.

Since Nanaimo did not buy Licensing 6.0, it still uses the Windows 2000 OS. “If we buy a new machine and it has (Windows) XP, we blow it away and install (Windows) 2000,” he said.

However, one industry analyst said Microsoft’s new licensing model is becoming standard across the industry.

“[There is a] systemic shift in the industry towards maintenance revenue as a larger proportion of the total revenue stream,” said Steve McHale, vice-president, software business strategies at IDC Canada Ltd. in Toronto. As the industry matures and software vendors establish themselves and create larger customer bases, less of their revenue comes from selling products to new customers and more comes from selling maintenance to existing customers, he added.

“It’s kind of funny that what Microsoft was doing was around getting customers to upgrade more frequently but it’s also in-step with the way the rest of the industry recognizes the need to sell more maintenance,” McHale said. Oracle Corp.’s maintenance revenue has now beat out its new-licence revenue, he noted.

As for customers getting blindsided by Software Assurance, McHale said the outcry the licensing program caused was also exacerbated by certain conditions within the user companies themselves.

Not all companies have employees who are dedicated solely to understanding licensing agreements, so it would be more difficult for businesses without these experts to quickly generate a cost/benefit analysis of Licensing 6.0. Because Canadian companies are mainly comprised of small-to-medium-sized businesses this process would have been difficult, McHale said

Sherry Irwin, president of the Canadian Software Asset Management Users’ Group in Toronto, said there was some concern initially when Microsoft announced Licensing 6.0 almost two years ago, but these new additions to the program haven’t created a stir amongst members of her group.

However, her user group does praise several changes Microsoft has made to its licensing agreements, such as announced user-based client access licenses (CALs) instead of devices-based CALs. That means users only need one software licence if they have multiple devices. Previously a user would need separate licences for desktops, laptops and personal handheld devices.

Also, users now only need to pay for the number of processors its server software runs on, whereas before the user would need to pay for the number of processors contained in the unit.

Some changes to the auditing clauses are unfavourable, according to Irwin. She said users have no control over who performs the audit for Microsoft and how long it takes. Also, there is no limit to financial penalties for non-compliance, she said.