Microsoft Sees Open-Source Threat Looming Ever Larger - Page 3
"Also, Apple and IBM pre-install certain of their application software products on various models of their PCs, competing directly with our applications," the filing reads. "Corels suite and Sun Microsystems StarOffice are aggressively priced and attractive for OEMs to pre-install on low-priced PCs. "The OpenOffice.org project provides a freely downloadable cross-platform application that is gaining popularity in certain market segments. In addition to traditional client-side applications, Web-based offerings such as SimDesk provide an alternative to Microsoft Office System products," company officials said.Microsoft also cautioned that any pullback in customer renewals for its controversial Licensing 6 and Software Assurance program, which became effective in July 2002, could also adversely affect the company. "A significant number of customers purchased license agreements providing upgrade rights to specific licensed products prior to the transition to Licensing 6.0 in July 2002. These agreements generally expired throughout fiscal 2004 and will largely be expired by the end of the first fiscal quarter in 2005. The rate at which such customers renew these contracts could adversely affect future revenue," the filing said. But the company is facing pushback from volume licensees whose three-year Licensing 6.0 and Software Assurance plans are about to expire. Many of the companys volume license customers, whose contracts have expired or are set to expire, are questioning the value they got from the programs and whether they should renew. Microsofts licensing program, Upgrade Advantage, also reached the end of its life in July when the last customer contracts expired. Those customers can continue to use the software they acquired under the program, but they will not get further product upgrades and will now have to pay for full versions of Microsoft products or sign up for Software Assurance. In the latest filing, Microsoft officials said they now expect to renew just 10 percent to 30 percent of the expiring Upgrade Advantage program revenue through conversions to Software Assurance or migration to Enterprise Agreements. While Microsoft was also making significant investments in the next release of the Windows operating system, code-named Longhorn, it warned that if this system was not perceived as offering significant new functionality or value to prospective purchasers, "our revenue and operating margins could be adversely affected." While the filing said the development of software products was a complex and time-consuming process, "significant delays in new product releases or significant problems in creating new products, particularly any delays in the Longhorn operating system, could adversely affect our revenue." Just a week ago, Microsoft officials announced that the company would be scaling back the feature-set for Longhorn so that it could meet shipping deadlines of 2006 for the client and 2007 for the server. That move was not well-received by some developers and enterprise customers and is seen by some as giving Linux the boost it needs. Check out eWEEK.coms Windows Center at http://windows.eweek.com for Microsoft and Windows news, views and analysis.
Microsoft also addressed the tightrope balance it is walking between meeting the needs of the installed base that is running older versions of its products and the need to encourage them to upgrade. Company officials cautioned that revenue would be unfavorably impacted if customers reduced their purchases of new software products or product upgrades because new product offerings were not perceived as adding significant new functionality or other value to prospective purchasers.