Microsoft users can reap savings by updating licensing

Enterprise customers can lessen the financial impact of Microsoft Corp.’s new licensing program if they are able to sign fresh contracts before the end of this month, according to research firm Gartner Inc.

Enterprises that currently license software under the Select Agreement maintenance program should terminate those contracts and sign new Select Version 5.0 contracts before October 1, according to Gartner. The research firm says customers with Open Authorization maintenance contracts should do the same, but Microsoft officials say those customers have other options.

The new contracts, Gartner says, will allow users to delay the costs of entering into Microsoft’s new licensing and upgrade program, which can run into the hundreds of thousands of dollars.

On October 1, Microsoft will begin its Licensing Version 6 program and an upgrade plan called Software Assurance that will increase costs to license software for many users. But enterprises that sign new Select contracts before October 1 can buy an upgrade option called Upgrade Advantage that will keep them away from the new licensing program for two years. Upgrade Advantage provides users with the rights to upgrade to the most current version of Microsoft software.

The Upgrade Advantage option, however, will disappear for Select Agreement customers after October 1. Select contracts that expire after that date can only be replaced with Version 6 contracts and the Software Assurance upgrade option.

By delaying enrollment in Software Assurance, which consolidates all of Microsoft’s upgrade options under one plan, enterprise customers are delaying the fees associated with the program. To enroll, users pay 29 per cent of the full-licensing price of desktop software and 25 percent of the full-licensing price of server software per year. For example, if an enterprise licensed 5,000 copies of Office for US$349 each, they would pay more than $500,000 to enroll in Software Assurance.

In contrast, Upgrade Advantage pricing for Office can run between $200 and $300 per user for the 2 years of the contract.

Customers with Open contracts that expire after October 1 are still eligible to purchase the Upgrade Advantage option, but only until February 28, 2002, according to Microsoft officials. The Upgrade Advantage contract, however, is retroactive to October 1, meaning customers’ two years of upgrade protection starts on that date regardless of when the contract is purchased. In addition, those customers will have to purchase Licensing Version 6 to replace their expired Version 5 contracts.

Gartner and other firms, including the Meta Group Inc., are recommending that Open and Select customers purchase new Version 5 contracts before Oct. 1.

“The Upgrade Advantage starts and ends with the licensing contract, which runs for 2 years,” says Alvin Park, an analyst at Gartner. “Enterprises should sign contracts before the end of the month so they have the full two years of upgrade protection. If you buy the Upgrade Advantage today on a year old licensing contract, you have paid for a year of yesterday’s and only for a year into the future.”

The program, announced in May, has drawn much wrath from IT executives that Microsoft in June moved the deadline to enroll in Software Assurance from October 1 to February 28, 2002. The intent was to give enterprises more time to build the fees into their budget cycles.

But the debate still rages. On Monday, The Infrastructure Forum, a trade group based in the United Kingdom, requested that the U.K. government’s Office of Fair Trading launch an investigation into Microsoft’s licensing practices.

Microsoft officials admit that customers who upgrade on cycles longer than three years will see higher costs for software. But nearly 80 per cent of users will see costs unchanged or reduced, the company says.

“People don’t like the new rules, but the reality is that you have to live with them,” says Kurt Schlegel, an analyst with the Meta Group. Shoring up your contracts now “is the cheapest way to go; cheaper than doing nothing and then trying to sign up later on.”

Schlegel says some users with Windows 2000 and Office 2000 already deployed are taking a “get current and hold” attitude and ignoring the new licensing program. But he says that holding pattern must stretch for four years in order for the strategy to pay off. He says nearly 80 percent of customers are updating Open and Select contracts or buying into a third option called an Enterprise Agreement. The three-year agreement gives users upgrade rights to Windows, Office and Back Office licenses for between $150 and $265 per user, per year.