Microsoft Eyes Pay-as-You-Go Licensing

By Peter Galli  |  Posted 2004-04-19

Microsoft Eyes Pay-as-You-Go Licensing

Microsoft Corp. officials are mulling potential changes to the companys enterprise volume licensing program that could let large systems integrators and service providers license software on behalf of their largest customers.

Enterprises now must negotiate their own volume agreements with Microsoft, even when the software is hosted and managed by a third party. New solutions, sources said, could allow pay-as-you-go licenses rather than requiring users to pay for and get tied up by a long-term agreement.

Sources said some licensing changes could be in the cards as early as next year, in time for "Yukon," the next version of SQL Server, or by 2006, for "Longhorn," the next version of Windows. A spokesman for the Microsoft Volume Licensing Team, however, said Microsoft has no plans to institute SPLA (Service Provider License Agreement) options into its enterprise agreements "in the imminent future."

But Microsoft CEO Steve Ballmer said he believes such ideas have merit if a win-win arrangement can be forged among Microsoft, outsourcers and users.

Ballmer told eWEEK editors in an interview at the companys Redmond, Wash., campus earlier this month that "weve been under ... a constant issue with outsourcers [about service license agreements]. Right now, the way we work is we own the license and then we sell the license to the customer and it gets managed by the outsourcer."

For the full Ballmer interview, click here.

Ballmer said he believes that the current model is the right one for Microsoft but that there are outsourcers that want to be able to put the license costs into their fees instead of letting Microsoft have a direct relationship with their clients.

"That issue has existed for a long time," Ballmer said. "Its a very hard licensing problem because we dont want these guys to become just sort of volume aggregators like master distributors of our software. That does not make any sense to us. Its not where real value-add is."

Ballmer did not rebut the possibility that such licensing changes could be under consideration.

"It wouldnt surprise me," Ballmer said, "if there was somebody around the place working on seeing if we couldnt find a win-win for us, the outsourcers and the customers."

Next page: Some customers would welcome SPLAs.

Page Two

Some customers welcomed the possibility of SPLAs, saying that option opens the market further for providers to offer complete desktop management contracts to smaller organizations than is otherwise practical. "Our partners and clients could take advantage of this to cut their own costs, thereby indirectly reducing our costs," said Chuck Kramer, chief technology officer for Social & Scientific Systems Inc., in Silver Spring, Md.

Sources said another change under discussion involves the creation of a universal Client Access License, known as a "Super CAL," which would bundle rights to many more servers than are now found in the core CAL currently included in enterprise agreements. But Ballmer disputed talk of plans for a Super CAL. "There might be somebody talking about it, but still, in my opinion, I dont think it will happen. I dont know about it," Ballmer said.

Jack Beckman, an application programming manager for Service Centers Corp., in Southfield, Mich., said Microsoft should rethink its CAL strategy in the face of Linux. "Microsoft products that look very attractively priced on the server become cost-prohibitive for us when all the licenses are added in—and the management is a nightmare. A more universal Super CAL might be helpful if it makes management easier and pricing lower," Beckman said.

These possible licensing changes follow growing concern by some Microsoft customers who, in 2002, signed up for three-year Licensing 6.0 and Software Assurance plans, only to watch Microsoft push back some new products, including Longhorn and Yukon. As a result, their contracts with Microsoft might expire before those products ship.

Social & Scientifics Kramer is concerned about the delays in delivery of products like Yukon and Longhorn. "Much of our decision to go with Licensing 6.0 and Software Assurance was based on pure economics and Microsofts anticipated timeline," he said. "That has borne out to be an incorrect calculation on our part. We are not very pleased with the Software Assurance program. We dont feel it has been a good value for us overall."

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