Users Cool to New Microsoft Licensing Plans

By Peter Galli  |  Posted 2001-10-01 Print this article Print

Microsoft's new plans for subscription-based software licenses for volume customers will go into effect this week, despite cries of foul from many enterprises.

Microsoft Corp.s new plans for subscription-based software licenses for volume customers will go into effect this week, despite cries of foul from many enterprises.

The license agreements, including the new Software Assurance program, essentially commit companies to buying operating system and application upgrades for an annual fee.

The only alternative for users is to shun the agreements and pay the full price for the software when they do upgrade. Microsoft also will allow customers to lease software through subscription rather than buy the license.

"Theyre saying that unless you jump on and start paying a bunch of money now to secure the upgrades for XP ... that youll have to go full bore," said Dave Howell, IS manager at PED Manufacturing Ltd., in Oregon City, Ore.

"So to hell with them," Howell said. "Were just not going to do it. Well do it when we see fit. It may slow our upgrade path by two more years just because of what theyve done."

Some customers said Microsoft has been aggressive and even threatening in implementing the licensing agreements. Customers are also upset because the plans do away with the most popular and least expensive ways large sites have been able to buy software--through the version upgrade programs or via a two-year Upgrade Advantage maintenance contract.

One IT consultant who requested anonymity said many of his customers are being forced to upgrade as a result of the Software Assurance agreements, which require users to be running the latest version of a product by Feb. 28.

"This is creating a lot of ill will," he said. "Between that and the [Business Software Alliance] anti-piracy campaign, a lot of Microsoft customers are being seriously alienated."

Paul Tinnirello, executive vice president of AM Best Co.s IS division, in Oldwick, N.J., and an eWEEK columnist, signed up for the Software Assurance program last week. While Tinnirello said the Microsoft moves were "probably conventional from a licensing standpoint, as well as guaranteeing a repeat revenue stream on a more predictable basis. I think what they did wrong was not adjust the price and to make the initial pain index too high."

Had Microsoft lowered the initial price, gotten customers involved and then slowly turned up pricing, "they would have accomplished the same thing without all the gnashing of teeth we are currently seeing," Tinnirello said.

Rebecca LaBrunerie, Microsoft program manager for worldwide licensing and pricing, said the Redmond, Wash., company is concerned about negative user response.

"This is a significant paradigm shift we are rolling out," LaBrunerie said. "But we are, as always, listening to our customers and their concerns. We continue to work on simplifying our licenses further and on making the programs more standard."

Microsoft maintains more than 50 percent of its customers will see no change in costs, but some disagree. "By eliminating the version upgrade, the average increase in cost to upgrade for an organization that upgrades every three years is 35 percent to 77 percent," said Neil McDonald, an analyst at Gartner Inc., in New Haven, Conn. McDonald said most of his companys clients upgrade every four years.

"If they upgrade every four years, itll cost them 68 percent to 107 percent more," he said.

For a company with 5,000 Microsoft Office desktops, the model translates into added costs of between $400,000 and $700,000 for a three-year upgrade and between $900,000 and $1.6 million more for a four-year upgrade cycle, McDonald said.

The move may backfire for Microsoft. Some users will deal with Software Assurance by putting off upgrades. While they may pay more, they wont pay as often. For instance, PED Manufacturing is unlikely to migrate from Microsoft products, but "any updates will be very slow, especially if we have to pay full price," Howell said. "They will lose at least one or two upgrade cycles with me because of this."

Additional reporting by Ken Popovich

Peter Galli has been a financial/technology reporter for 12 years at leading publications in South Africa, the UK and the US. He has been Investment Editor of South Africa's Business Day Newspaper, the sister publication of the Financial Times of London.

He was also Group Financial Communications Manager for First National Bank, the second largest banking group in South Africa before moving on to become Executive News Editor of Business Report, the largest daily financial newspaper in South Africa, owned by the global Independent Newspapers group.

He was responsible for a national reporting team of 20 based in four bureaus. He also edited and contributed to its weekly technology page, and launched a financial and technology radio service supplying daily news bulletins to the national broadcaster, the South African Broadcasting Corporation, which were then distributed to some 50 radio stations across the country.

He was then transferred to San Francisco as Business Report's U.S. Correspondent to cover Silicon Valley, trade and finance between the US, Europe and emerging markets like South Africa. After serving that role for more than two years, he joined eWeek as a Senior Editor, covering software platforms in August 2000.

He has comprehensively covered Microsoft and its Windows and .Net platforms, as well as the many legal challenges it has faced. He has also focused on Sun Microsystems and its Solaris operating environment, Java and Unix offerings. He covers developments in the open source community, particularly around the Linux kernel and the effects it will have on the enterprise.

He has written extensively about new products for the Linux and Unix platforms, the development of open standards and critically looked at the potential Linux has to offer an alternative operating system and platform to Windows, .Net and Unix-based solutions like Solaris.

His interviews with senior industry executives include Microsoft CEO Steve Ballmer, Linus Torvalds, the original developer of the Linux operating system, Sun CEO Scot McNealy, and Bill Zeitler, a senior vice president at IBM.

For numerous examples of his writing you can search under his name at the eWEEK Website at


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