Microsofts Software Assurance: Not a Bad Deal?

Opinion: A survey finds that the licensing program has not raised customers' software costs by 200 percent or more as expected, thanks to added value such as rebate programs and indemnification protection.

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After three-and-a-half years, Microsofts Software Assurance program hasnt brought customers the 200 percent to 300 percent increases in software cost that many predicted when it was announced in May 2001.

My friend Laura DiDio, a well-known Yankee Group analyst, recently completed a survey that found that most customers on Software Assurance have seen the cost of their Microsoft software either stay the same or go down under the program.

Software Assurance is a Microsoft licensing program that includes upgrades and other benefits over the life of the agreement. Almost all of Microsofts enterprise customers are now enrolled in the program, with participation decreasing in customers with fewer numbers of computers.

Overall, DiDio estimates that 40 percent to 45 percent of Microsofts business customers participate in the SA program.

As for specifics, DiDios survey of 1,000 IT administrators found that 35 percent paid the same for software under Software Assurance as before they joined the program, while another 27 percent saw their Microsoft payments actually decrease after joining the program.

What about the huge increases predicated when the program started? DiDio said only 10 percent of customers saw increases greater than 50 percent, and most of those admitted to having what she called "compliance issues."

"The perception of SA as a big money pit has turned around," DiDio told me.

Why? Because of value Microsoft has added to the program, including rebate programs that reduced its cost by nearly 30 percent in some cases. The company also, just before the SCO lawsuits made news, added significant indemnification protection for its own customers against the patent claims of others.

Software Assurance was introduced as Microsofts way of decoupling its revenue from upgrade cycles. SA smoothes out customer payments as well as Microsoft revenue, reducing the spikes that occur when updated products become available.

But this only works if Microsoft ships the upgrades that customers expect to receive under the program, which the company wont guarantee. Many early SA customers expected the next version of SQL Server, code-named "Yukon," to ship during the three-year term of the agreement.

/zimages/6/28571.gifClick here to read about SQL Server 2005 Beta 2.

That didnt happen, and many of those customers are now unhappy with Microsoft, which doesnt expect Yukon to ship until 2005. DiDio has suggested that the company offer a one-time extension to those customers, but Microsoft hasnt done so, apparently fearful of setting a precedent.

My bet is that Microsoft is quietly making these customers happy in one way or another. Many have a number of Microsoft purchasing agreements, including separate deals for servers and desktops. This complex licensing structure gives Redmond ample opportunity to reward some customers—and potentially to penalize others.

/zimages/6/28571.gifWhat are customers saying about Microsofts Software Assurance program? Click here to read more.

Microsoft licensing is incredibly complex and something not many people, including those at Microsoft, can say they fully understand. With programs such as SA, Microsoft has attempted to simplify its licensing but has yet to really succeed. Customers often dont understand the options available to them and are left at the mercy of their Microsoft reseller to help them navigate the complexities of buying the companys products.

As for Software Assurance, its not a bad deal, according to DiDio, provided you upgrade at least every four years. Companies who upgrade their Microsoft applications less often are better off purchasing new versions as they are released.

I have recently become very interested in Microsoft licensing and what it means both for customers and for the companys future. This column started as a call to Laura asking about another aspect of licensing—the changes Microsoft is making in its revenue model—that I will be discussing in future columns. Given the broad interest in SA, this seemed like a good place to start my commentary on how Microsoft brings in revenue.

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