Microsoft Must Show Licensing Flexibility

Microsoft risks damaging its enterprise business.

When Microsoft in May 2001 announced plans to revamp its volume software licensing and upgrade programs, it became apparent that the company was out of tune with many of its enterprise customers. While Microsoft officials said Version 6 of its Select and Software Assurance volume purchase and upgrade programs would benefit customers by streamlining what had been a complex and confusing set of options, many enterprise IT managers justifiably saw the change as a heavy-handed attempt by Microsoft to force them into a faster upgrade cycle and an annuity licensing model—all to benefit Microsofts bottom line. Their concern caused Microsoft to soften the program and delay its implementation.

With the deadline for Microsoft customers to buy into the new licensing scheme having just passed, the Select and Software Assurance plans seem to run even more strongly counter to the needs and interests of enterprise customers than they did last year. Under pressure to hold down IT spending, many IT managers are stretching out upgrade cycles longer than ever. Yet Microsofts new upgrade plans clearly reward those who upgrade often while punishing with higher prices those who wait.

By not reaching out to IT managers now on these issues, Microsoft risks long-term damage to its enterprise business. Recent discussions with IT managers convinced us that they still harbor resentment over what they see as the strong-arm tactics by Microsoft. Some are waiting for an opportunity to jump ship.

Even at this late date, Microsoft can begin to rebuild its relationship with such alienated enterprise customers. First, the company should restore some form of the Version Upgrade Program—eliminated in the new set of offerings—which enterprises could use to upgrade selectively and on their own schedule while still receiving discounts. Second, Microsoft should return to IT managers who passed on the new program—and those who signed only reluctantly—and offer them a phased approach to migrating to the new licensing and upgrade terms and conditions.

Unless Microsoft shows flexibility now on licensing and upgrades, the company and many of its enterprise customers will face the effects of a soured relationship for years to come.