Microsoft’s Ballmer responds to user concerns

Microsoft CEO Steve Ballmer today defended software maintenance charges, saying they offer software at “a fair price.” But he acknowledged user anger over planned changes by Microsoft to its volume licensing program and said the software giant has tried to respond.

“We got a lot of feedback from customers over the course of the last month on the changes that we announced five months ago, where people said, ‘Look, either you guys make some changes or we’re going to all elect one of those two options: we’ll go to the competition or we just won’t upgrade,'” Ballmer said at the Gartner Symposium ITXpo in Lake Buena Vista, Fla.

“And that’s why you saw us respond and make some changes…, to try to be responsive to things that people seek.”

Confronting a firestorm of complaints, Microsoft Corp. on Monday announced that it would extend the deadline for customers to move to the controversial volume licensing and upgrade changes that were first unveiled in May.

Corporate users now have until July 31, rather than Feb. 28, to make a decision about their future upgrade path for Microsoft software.

Monday’s announcement marked the second time the company had extended the deadline. Microsoft gave customers a temporary reprieve this summer when it postponed some changes that had been scheduled to take effect Oct. 1. Many corporate users complained that they felt pressured to make a decision during tough budgetary times.

Customers who may have made license purchasing decisions under duress to meet the Oct. 1 deadline – only to find it extended – will receive some sort of consideration from Microsoft, according to Ballmer.

He declined to offer more specific information, saying a detailed announcement would be made later.

In addition to delivering a speech at the Gartner event, Ballmer’s comments came in response to reporters’ questions and from his participation in a “Mastermind interview” with Gartner Inc. analysts.

Asked by one of those analysts, Tom Austin, whether that July deadline might be delayed further, Ballmer said he doesn’t think so.

“…I don’t think we’re going to hear anything then that we’re not hearing now and boy, have we heard loud and clear, ‘You will change the things.’ …We have a number of customers who are actually better off with the new program than the old program. We have some customers who are about the same, and then from the customers who are worse off, we got plenty of feedback. We’ve responded to it.

“So I think we’re kind of done, because we’ve heard what people had to say,” he said.

“The fact of the matter is if you look at the dollars, everything about our prices are quite different than classic enterprise software,” Ballmer said. “If you can find a classic enterprise piece of software that sells for a few hundred dollars, then its maintenance, too, might have to be a little higher than the per cent people think of as typical.

“I don’t seriously propose it. But the way to get the percentage down would have been to raise the price of the original license, which I don’t think anybody would have liked either. I think the Software Assurance price is a fair price.”

Not surprisingly, some users said yesterday that they’re pleased to get more time. But they also continued to express distaste for licensing changes that many fear will increase their costs to upgrade software and perhaps push them to upgrade their Microsoft software more frequently than they would like.

“It doesn’t signify to us that they’re changing their strategy, just that they’re delaying,” said Joseph Aivano, an IT director for the regulated utility group of Northeast Utilities Service Co. “I see [the announcement] as a significant negative and a retrenching as to how they can market this strategic change.

“Only when they saw the feedback did they see it was time to take a timeout and determine a better marketing strategy,” Aivano added. His main complaint is that “anything that adds costs, it just signifies leveraging of their monopolistic characteristics.”

David Weber, manager of technology acquisition and licensing at Farmers Insurance Group in Los Angeles, said the deadline extension is a “good trend” and might help his company, since it’s in the process of evaluating whether to purchase the Upgrade Advantage option, which would entitle his company to receive all upgrades released during the contract period and make it eligible for the new Software Assurance program.

But Weber added, “I still think they’re squeezing their customers, and they do have a monopoly on their products.”

Bill Landefeld, vice-president for worldwide licensing and pricing at Microsoft, defended the licensing changes in August, saying that the vendor 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.

“Customers have told us that Licensing 6.0, our improved licensing program, which we launched on Oct. 1, 2001, is a significant change but that our original five-month transition period was just not long enough,” Landefeld said yesterday in a statement.

“Given the economic climate today, it’s clear our customers were right. After listening to customers, Microsoft is extending the launch transition period to allow customers sufficient time to review their existing licenses, evaluate the new options and decide how to take advantage of Software Assurance,” Landefeld added.

One licensing change that didn’t get an extension is the popular Version Upgrade Program (VUP). Microsoft eliminated the VUP, along with some of its other “alphabet soup” of upgrade programs, in favor of a less-complicated Software Assurance plan.

But analyst firms have countered that Microsoft was eliminating one of its least expensive upgrade options, favored by many of their clients.

Under the Software Assurance program, users pay 25 per cent of the license fee for any server package and 29 per cent of a desktop product’s price each year for the right to upgrade to the latest version of the software available while their agreements are in effect. They must already be using the current version of the software to qualify for the program.

Microsoft said yesterday, though, that during the launch period, in addition to customers using the current Office XP, those using the older Office 2000 software can enroll directly in Software Assurance.

Microsoft officials have acknowledged that the change could result in higher prices for some customers, but they estimate that only about 20 per cent of purchases would end up costing more than they do now, because those customers upgrade less frequently than average. Microsoft predicted that the vast majority of customers will see license costs stay the same or decrease over time.

Two analyst firms, however, predicted that the elimination of the popular version-upgrade programs could result in substantial cost increases. Gartner estimated that companies that perform upgrades once every four years could see costs soar 68 per cent to 107 per cent under the Software Assurance program.

Chris Le Tocq, an analyst at Guernsey Research in Los Altos, Calif., said companies that perform Office upgrades every three years will face price increases ranging from 22 per cent to 48 pe rcent. If they upgrade every four years, the cost increases could be as much as 40 percent to 70 per cent, he said.