Microsoft Licensing: Still A Sticking Point For Some Enterprises

By Mitch Wagner

Two months after software giant Microsoft cut over to a controversial volume licensing plan, IT managers are signing up -- but they're doing so reluctantly. And the plan is motivating enterprises to find new alternatives to Microsoft.

"I can't begin to tell you how irritated I am by Microsoft's new pricing policy," said Bill Picton, director of information technology for Tharco Containers Colorado. "We have chosen not to play their game. I refuse to pay what amounts to 'protection' money in the software arena. We will simply defer all new purchases as long as humanly possible until one of two things happens: One, we simply have to buy additional licenses or two, an alternative to Microsoft appears to offer an acceptable replacement."

Microsoft rolled over to the new licensing plan, called Licensing 6.0 or Software Assurance, effective July 31. Previously, enterprise customers paid a one-time licensing fee for perpetual software use. Part of that license entitled the users to pay a discounted price for upgrades when the user was ready to do so.

Under Software Assurance, enterprises pay an annual subscription fee for software. That entitles them to free upgrades for the life of the subscription, but they pay the annual subscription whether they upgrade or not. The alternative: Pay full retail price for a perpetual license, and then pay full retail price again when they're ready to upgrade. Or they can simply get the latest software pre-installed on new systems, while continuing to use older versions on older systems.

Users complain that the licensing program is a complicated mess, and it's hard to figure out which option is better for them financially.

Customers started researching alternatives as soon as the plan was announced in May 2001. Most decided there were no alternatives to Microsoft -- for now. But many continued to look into alternatives even after signing for Software Assurance, and will likely come back ready for some bare-knuckles negotiations with Microsoft when the contracts run out in two to three years, said IDC analyst Dan Kusnetzky.

"The next time this comes up, the companies will have something in place and they will say to Microsoft, "Let's look at this again. Help us understand why we should stay with your product,' " Kusnetzky said.

Microsoft officials wouldn't say what percentage of enterprise customers have signed up for Software Assurance, although the company is "pleased with the uptake," said Rebecca LaBrunerie, Microsoft licensing program manager. The company said in July that new Software Assurance contracts were a significant, positive revenue contributor.

But the company also admits it made a lot of mistakes in rolling out the new terms.

"We didn't roll out the program very well," LaBrunerie said. "We learned a lot. Our customers found it difficult to determine if Software Assurance was right for their business and make the best decision based on what their IT needs are. We learned from that."

Acknowledging that many of its small and medium-sized customers are dissatisfied with the plan, LaBrunerie said Microsoft is testing out new financing options, including payment plans and financing. Those options are currently being tried in Europe, and the company is considering whether to roll them out worldwide.

Lawnmower manufacturer Snapper is one of the dissatisfied customers.

"Our agreement runs out in one more year and we are re-evaluating if it is worth the expense," said Howard Jones, vice president and CIO. The company believes Office is too entrenched for Snapper to use competing office applications, but Snapper will look for alternatives on the server.

Software Assurance is likely to be more financially beneficial for large enterprises than small or medium-sized enterprises, Kusnetzky said. And it's likely to save money for companies upgrading frequently, while costing more for companies with slower upgrade schedules. Microsoft itself estimated that Software Assurance would be less expensive than previous licensing plans for companies upgrading server software every four years, and desktop software every three-and-a-half years.

Matt Wilbur, director of IT for Photon Research Associates, said his company is avoiding Software Assurance wherever possible, instead avoiding upgrades on existing systems and getting the latest versions of software with new hardware.

He said Microsoft's requirements that IT managers sign documents saying that all the enterprise software is legally licensed means that Photon Research must perform audits, which are expensive and time-consuming. "We are legit and clean, but when I have to sign a piece of paper saying one IT guy in one place didn't slip up, I make everyone go and do a full audit," Wilbur said.

He added, "The general end-user license agreement is just wrong. The fact that they can command audits is sickening, and the other part is the way they try to shove everyone into it. It's as much about the tactics as the actual pricing scheme."

The City of Nanaimo, Canada, switched from Microsoft Office to Sun Microsystems StarOffice to avoid paying Microsoft licensing fees, said Cam Scott, client support analyst for the city, which is located about 30 miles west of Vancouver. The city would have paid about $250,000 to upgrade from Office 97, about 10 times the cost of StarOffice. "The learning curve with StarOffice is fairly small. I wouldn't say it's any greater than moving from Office 97 to XP," he said.

An IT manager at an enterprise with 6,500 desktops and about 150 servers said his company signed the Software Assurance upgrade this summer, after months of tough negotiations with Microsoft.

"We told them, 'You're making us think of every way not to have you in house,' but it didn't seem to matter," said the IT manager, who requested anonymity. The annual licensing fee will make it easier for IT managers to justify the cost of switching off of Microsoft platforms and the company will avoid, wherever possible, investing in new Microsoft software, the IT manager said.