Changes to Microsoft Corp.’s software licensing system that take effect in August continue to face resistance from customers, some of whom said they fear the changes will lead to higher prices and put them under pressure to upgrade their Microsoft software more frequently.
The new plan asks customers who buy licenses in bulk to pay an annual fee that will cover the price of all upgrades for the software they use during the period covered by their contract. Microsoft has argued that the plan will simplify the licensing process for its customers and help them save money in the long term as it rolls out updated products in its .Net software family.
One problem, critics say, is that the plan will put customers under pressure to upgrade their software in step with the release of new upgrades from Microsoft in order to get the full value of the plan. Microsoft typically releases upgrades to its products every 18 to 24 months. Some customers say they don’t want to upgrade their software with each new version released, particularly if the software they have in place is working fine.
“What is frustrating for so many of us is the way Microsoft forces us into getting new products,” said Dennis Kirk, manager of information technology for the State of Oregon’s Department of Environmental Quality.
The department traditionally has upgraded its software every four or five years, recently migrating to Windows 2000 on its desktops and servers.
“We’ve got a good five years out of Windows 95 and it did fine” Kirk said. With Windows 2000 now up and running, he expects to leave it in place for the next few years. “We’re going to try to get the most mileage out of all these products as we can.”
That sentiment may prove costly, however. Like other organizations, if the State of Oregon chooses not to adopt the new licensing scheme by Microsoft’s enrollment deadline of July 31, it faces the prospect of higher upgrade costs when it eventually does decide to refresh its software. That’s because Microsoft’s popular upgrade licensing plan will be retired when the new system is in place. Under the expiring agreements, customers received discounts on software upgrades even if they skipped intermediate versions of a product.
“We used to be able to invest in a Microsoft product and pay an upgrade fee. You had some value in what you bought from them,” said Kirk, who helps manage the state’s nearly 50,000 seats. “Today, after four years you have no value in the product you bought. You’re no different than anyone off the street who wants to buy software.”
Customers who don’t migrate to the new program by July 31 won’t be excluded from the program altogether, but they won’t be eligible for a discount that Microsoft is offering to customers who sign on by that date. It is encouraging customers who don’t want to sign up for Software Assurance to adopt a similar program called Upgrade Advantage, which it characterized as an interim program that will allow customers to convert to Software Assurance down the road.
Faced with the impending deadline, recent market research suggests that, like the state of Oregon, many customers are unhappy with or confused by the new scheme. For example, an informal poll conducted by Gartner Inc. just three months before the deadline showed that only about 30 percent of Microsoft customers had signed up for the new licensing plan. Another 30 percent were still pondering the switch.
“If there’s one word that I use to sum up what I’m hearing from customers, it’s resentment,” said Gartner analyst Michael Silver.
According to Gartner research from May 2001, released soon after Microsoft first detailed its Software Assurance plan, some enterprise customers who typically upgrade their Microsoft Office software every four years would pay an estimated 68 percent to 107 percent more if they switched from their current upgrade licensing plan to Software Assurance.
A further study of 1,400 Windows customers conducted last month by research firm Information Technology Intelligence Corp. (ITIC) and Windows reseller Sunbelt Software Inc. indicated that 41 percent of businesses polled said they lacked the necessary funds to migrate to the new plan, according to Laura DiDio, principal analyst with ITIC. Most of those who fear the cost increase are small and medium-sized business with less than 1,000 seats, she said.
“This group feels that they are particularly hard hit and that they don’t have much leverage,” DiDio said.
The purchase price of the software does not necessarily reflect the total cost of adopting it, analysts noted. Paying to train users, install the software and test for compatibility with internal applications adds to the cost of installing new software.
“People will find themselves in a quandary. They will have to upgrade before they are ready, and that will cause some problems,” said Dan Kusnetzky, vice president of systems software research at IDC.
Customers have had nearly a year to prepare for changes to Microsoft’s licensing agreements, as the software maker twice pushed back the deadline for when customers would have to make the switch. Despite this, DiDio said, many organizations have failed to assess the actual costs of various licensing options available from Microsoft, which may help them to negotiate better deals with the software maker.
Microsoft contends that the Software Assurance program will simplify the buying process for its customers. It has said it was inspired in part by changes in buying trends, including a shift towards shorter software upgrade cycles. Many of the changes also help to facilitate the company’s long-talked about shift to selling its software on a subscription basis.
Some organizations, including some high-tech companies and schools, do depend on having access to the most recent versions of software in order to remain competitive, some Windows customers said in interviews this week.
Dean Sheley, network administrator of Southeast Technical Institute in Sioux Falls, South Dakota, said the school recently made the switch to Office XP and is already planning for its server migration to Windows .Net when it is release later this year.
As an academic institution, Southeast Technical gets deeper discounts from Microsoft than most enterprise customers. Nevertheless, Sheley described Microsoft’s licensing system as “a pain,” and said he has considered replacing some Microsoft software with alternatives such as Linux.
“Right now we’re really up in the air as to where we are going to go with our software,” Sheley said.
Indeed, one side-effect of the licensing changes has been a revived focus on alternatives to Microsoft software. Some analysts have said the unrest among Microsoft customers could open new opportunities for competitors such as Sun Microsystems Inc., which this week rolled out a new version of its StarOffice desktop productivity software.
“The percentage of customers who say they are actively looking to replace Microsoft has gone up,” DiDio said, citing her research. “When it comes down to it, some people aren’t going to be able to do it (migrate off of Windows and Office). But where Microsoft can be replaced, it’s become a real fashionable thing to do.”