Microsoft Backs Off on Licensing Plans

Users say plans too restrictive, seek alternatives.

A growing number of enterprise customers are seriously considering alternatives to Microsoft Corp. products as a result of the companys hard-line approach to its volume licensing programs.

While the Redmond, Wash., company may not see immediate fallout from its new licensing plans, the long-term negative impact could be significant if products such as Linux or Sun Microsystems Inc.s StarOffice desktop productivity suite continue to gain ground.

Last week, Microsoft capitulated to growing customer pressure about the plans and changed some of the conditions and extended the sign-up period. The company pushed the date to July 31, 2002, from Feb. 28 and announced that customers will no longer be required to upgrade to Office XP to qualify for Software Assurance.

It also said it was making Upgrade Advantage available to customers under its Open and Select volume licensing agreements during the full launch period.

Dave Howell, the IS manager at PED Manufacturing Ltd., in Oregon City, Ore., a Microsoft shop since 1988, said it would be difficult for the company to simply move from Microsofts platform to another.

"But I am now looking at and thinking about alternatives, and if Microsoft keeps doing what [its] doing with their licenses, they will push me to the point of no return," Howell said. "Unless they change their ways—and do so soon—that day is rapidly approaching."

Other Microsoft customers are switching. Tim Payne, vice president of wholesale distributor TMP Co., in Seattle, has switched to StarOffice. Payne said he saved $1,000 per employee with the move. According to Payne, Microsofts licensing was "most restrictive and very expensive, and they dont use industry standards in their products."

When Microsoft announced the new licensing agreements in May, it said customers had three months to upgrade to the latest versions of Office XP and Windows 2000 to qualify for Software Assurance.

The Software Assurance program commits companies to buy application upgrades for an annual fee. The alternative for the companies is to shun the new agreements and pay the full price for the software when they do upgrade.

The revised licensing plans came as dissent for the program mounted. A recent report by The Infrastructure Forum, an association of senior corporate IT managers based in Berkhamsted, Hertfordshire, England, said many of its member companies were thinking about scaling back on Microsoft products or switching to open-source alternatives as a result of the licensing changes.

The forum estimated that some 94 percent of its members will see a hike in their license fees. A recent survey by Giga Information Group Inc. and Sunbelt Software Inc. of more than 4,000 technology professionals found that 36 percent of those polled said they would consider alternative products, while 80 percent expected to pay more for their Microsoft software.

Adding to the pressure on Microsoft, Sun officials last week said their company is witnessing a record number of Windows and Office users downloading the beta of StarOffice 6 for review and testing—more than 200,000 downloads from Suns site in the first week of availability. Simon Phipps, a Sun evangelist in Southhampton, England, said Sun will challenge Microsofts Internet Information Services server with its iPlanet server, whose price has been cut by 37 percent.

"We never intended it to go up against Microsoft with StarOffice, and we still dont. But a lot of people downloading the software are evaluating the product. Office users are defecting to us despite the fact that we are not marketing to them. Microsoft has no one but itself to blame for the increasing customer dissatisfaction with them and their products," Phipps said.

PEDs Howell welcomed Microsofts latest licensing changes and time extension as a "good move" that gives him more time to consider the issues further. But he remains skeptical about whether the cost benefits and return on investment of upgrading from Office 2000 and Windows 2000 to the XP versions of the programs justify the new licensing costs.

"As Microsoft continues to charge customers more for its software in an environment where other software is free or prices are falling, its customers will increasingly move to other products," TMPs Payne said.