Microsoft Corp. on Tuesday bowed to enormous pressure from customers, altering some of the conditions of its controversial new volume licensing plans and again extending the transition period for them to sign up for its Software Assurance offering.
Also on Tuesday, the Redmond, Wash., software developer lost its bid to have the Supreme Court review the D.C. Appeal Courts ruling on the landmark antitrust case originally heard by District Judge Thomas Penfield Jackson.
Microsoft had claimed that Jackson was biased as he had held private interviews with reporters and made critical comments about Microsoft while hearing the case. As such, Microsoft said, his entire judgment should be vacated.
Iowa Attorney General Tom Miller, who leads the 18-state Microsoft Working Group, welcomed the courts decision. "We are not surprised the Supreme Court did not take up the matter, because the decision by the D.C. Court of Appeals was unanimous and very well-reasoned," he said. "We are pleased that the Supreme Court has declined to take up the Microsoft case and that the case will proceed on the schedule set forth by Judge Kollar-Kotelly."
On the licensing front, Microsoft has faced significant customer opposition to the new subscription-based licensing agreements for volume customers, which went into effect on Oct. 1. The new plans did away with the most popular and cheapest way larger companies could buy software -- through Microsofts common version upgrade programs or via a two-year "Upgrade Advantage" maintenance contract.
The new agreements and Software Assurance program essentially commit companies to buying operating systems and application upgrades for an annual fee. The alternative users face is to shun the new agreements and pay the full price for the software when they do upgrade.
Microsoft is also leasing software through annual subscription contracts rather than selling it outright.
Back to the Drawing Board
When Microsoft announced the new agreements in May, it said customers had three months to upgrade to the latest versions of the operating systems – Office XP and Windows 2000 – in order to qualify for Software Assurance. The firm then extended that deadline to Feb. 28, 2002, on the back of a storm of customer protest.
On Tuesday it pushed the date even further out, to July 31, 2002, and announced that customers would no longer be required to upgrade to Office XP to qualify for the Software Assurance plan. It also said that it was making Upgrade Advantage available to customers under its Open and Select volume licensing agreements during the full launch period.
Microsoft spokesman Dan Leach told eWEEK Tuesday that the latest moves were a response to customer feedback. Many customers were concerned about the current economic climate and had felt the five-month transition period was simply not long enough.
"We listened to their concerns and decided they were right and we needed to extend the launch transition period to allow them enough time to review their existing licenses and evaluate the new options. While every customer need and focus is different, much of the feedback revolved around the timeframe for the changes and not the cost," he said.
But the Redmond, Wash., software firm has faced a backlash from angry customers and bad press from analysts about the move. Industry group The Infrastructure Forum recently issued a report that said many companies were thinking about scaling back on Microsoft products or switching to open-source alternatives as a result of the licensing changes.
TIF estimated that some 94 percent of its members would see a hike in their license fees and said that many were "ready to rebel."
A recent survey by Giga Information Group and Sunbelt Software of more than 4,000 technology professionals also found much the same thing, with 36 percent of those polled stating they would now consider alternative products, while 80 percent expected to pay more for their Microsoft software.
In a recent interview with eWEEK, Rebecca LaBrunerie, Microsofts program manager for worldwide licensing and pricing, said the company was concerned about the negative user response and understood the confusion around the changes.
"This is a significant paradigm shift that we are rolling out. But we are, as always, listening to our customers and their concerns. We continue to work on simplifying our licenses even further and on making the programs more standard," she said.
Microsoft had already responded to client concerns by extending the deadline for Software Assurance customers to be upgraded to the latest version of the operating system. It had also removed the condition that if, in the future, clients wanted a Microsoft Premier Support contract, their entire installed base of server and desktop licenses had to be enrolled in Software Assurance, she said.
Microsoft has maintained that more than 50 percent of its customers would see no change in costs, but some analysts feel differently.
LaBrunerie said Microsoft had also examined all volume license purchases over the past two years, and had found that 30 percent would see costs go down (primarily Enterprise Agreement clients that already had the rights to the latest versions); 50 percent would see no impact (those customers who tended to upgrade every two to three years), while 20 percent would see a negative price impact (those who upgraded every four years or more).
But Neil McDonald, the director of research for Gartner Inc. in New Haven, Conn., said that by eliminating the version upgrade, the average increase in cost to upgrade for an organization that upgrades every three years was 35 percent to 77 percent.
"For most of our clients, who typically upgrade every four years, itll cost them 68 percent to 107 percent more," he said.
How It Breaks Down
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, he said.
In late July, Microsofts chief financial officer, John Connors, told analysts that some 40 percent of its total revenue came from volume licenses, but said he did not think the new license and software assurance plan would make a significant difference in fiscal 2002.
Leach agreed, saying he did not anticipate these changes would have a significant financial impact for Microsoft in the long term.
But Gartners MacDonald said Microsoft had been changing its licensing terms for years as a way to generate revenue and would continue to do this. Gartner had told clients to add 40 percent a year compounded to their current budget for Microsoft software.