User group criticizes Microsoft’s new licensing scheme

Hoping to kick-start an international revolt against Microsoft Corp.’s recently announced revamped licensing scheme, a Dutch group of systems administrators last week sent Microsoft an open letter to complain about what it feels is an unreasonable increase in cost.

The Netwerk Gebruikersgroep Nederland (NGN) said that the cost for Microsoft software under the new policies, which comes into effect on Oct. 1, would increase for 86 per cent of its members. Microsoft, when it announced the new scheme on May 10, said that about 80 per cent of its customers will get cheaper software or won’t see any changes in the cost of software.

The NGN unites 3,700 IT and network professionals from small and large organizations in the Netherlands. These include multinationals such as ABN Amro Bank NV, Royal Dutch/Shell Group, and ING Group NV.

“Microsoft is abandoning the principle that a corporate user has the right to a discounted upgrade. If NGN members want Office XP at a reasonable price they need to upgrade before Oct. 1 this year. If they don’t, the price for using Office XP over a four-year period will be 100 to 232 percent higher,” said NGN chairman Vincent Everts in an interview.

“Most companies simply aren’t capable of carrying through such an upgrade before Oct. 1, or will refuse to do so. Microsoft is putting a knife at our throats,” said Everts.

At the core of the complaint is the elimination of Version Upgrades (VUPs). This currently is the cheapest mechanism for enterprises upgrading less than twice every two to three years, and most Microsoft customers use them, said Gartner Group Inc. analysts Alvin Park and Alexa Bona in a written response to Microsoft’s new pricing system.

“We find it unreasonable that existing upgrade rights will default after Oct. 1, and a price hike that large is unjustified. The VUP should remain an option,” said Everts.

Everts acknowledged that the Netherlands is only of minor importance to Microsoft and said he is working to mobilize his peers worldwide.

“The NGN, as the largest of its kind in Europe, took the lead and set a precedent. We will discuss this with European and American peers. Everybody is waiting for large U.S. companies to speak up,” he said.

Independent IT consultant and chairman of NGN’s Windows special interest group Eric Oukes said the topic is now hot amongst IT managers, but will soon make its way to corporate board rooms.

“The IT managers will brief management about the licensing changes and we will soon hear how management feels,” said Oukes.

Microsoft responded to NGN’s letter in a statement.

“The letter shows that our new licensing model is cause for confusion. We regret that and are in talks with the NGN about these matters. The new model was invented to make it easier for our customers and ourselves to buy and implement licenses,” Microsoft said. In contrary to what the letter states, most customers in the Netherlands will only profit from the new license system, the statement said, adding that Microsoft offers to brief customers individually if questions remain.

Analysts agree with NGN, although the increase in cost they see isn’t quite as dramatic. Gartner’s Park and Bona expect companies with a four-year upgrade cycle to pay 68 per cent to 107 per cent more for their software. Those who upgrade every three years typically will pay 35 per cent to 77 per cent more, according to Gartner’s written response to Microsoft’s new pricing system.

Only customers who upgrade frequently will be better off with the new licensing policies, according to both analysts and the NGN.

“Microsoft wants us to upgrade every 18 months, but a four-year upgrade cycle is more common. Many enterprise users skip a version. All our members are telling us they won’t use Office XP until 2002. If they buy it now, it will be shelved,” said Everts.

Under the current upgrade pricing scheme companies face a choice between upgrading now under the VUP plan and saving 50 per cent of the end-user price, or paying the full price after Oct. 1 when the VUP is discontinued, according to an NGN statement.

The price in dollars for a software package typically depends on negotiations between the vendor and buyer, but in its example NGN used a price of US$600 for Microsoft Office Profession Edition.

Customers can also upgrade via the retail channel. This way the company can still benefit from 50 percent savings after Oct. 1, but the retail software differs from the software bought on a corporate license. The retail version includes, for example, a module that only allows two installations, unworkable in a corporate environment, the NGN said.

Microsoft, however, is pushing its new subscription model Software Assurance (SA) program. The software giant expects over 50 per cent of its customers to sign up. Subscribing to SA costs 29 per cent of the end-user price per year and gives the right to all upgrades of Office.

To be eligible a customer needs to run the current version of the product. Only Office XP will be the current version on Oct. 1, so the customer first needs to upgrade. Once the cost of the four-year SA contract is added on to the cost of the software upgrade, users end up paying a premium of 66 per cent, the NGN calculated.

The NGN in Tiel, Netherlands, can be reached at Microsoft, in Redmond, Wash., can be reached at