Socking It to Buyers

Windows Server 2003 has been released to manufacturing and is ready to be launched to a community that is going to be hard pressed to pay for it.

These days, IT budgets are under intense pressure from corporate chief financial officers. Microsoft, of course, realizes this. Thats why the company has been attempting to make the case that Windows Server 2003 will not only improve efficiency but, because of the integrated product stack that comes with it, will also reduce costs.

The company uses a case study of discount airline JetBlue to illustrate its point. Taking a look at JetBlue, however, shows how software costs can skyrocket. JetBlue has 100 servers and more than 2,500 users. If JetBlue paid the full price for the entire Windows stack, the cost would soar to nearly $1 million, and thats without putting any applications on top of the stack. For example, at $999 per server and 90 servers, just for the Standard Edition, the server price alone would be nearly $90,000. With 10 servers running the advanced version of the server, the cost for the servers would be about $120,000. Factor in client access licenses at $799 per 20, and youd rack up nearly $100,000 more. Then add in Windows XP on, say, 2,500 systems, and youll get $750,000 more or a total of $970,000 just for an operating system platform. Of course, JetBlue wont pay full price, and corporations can buy discounted site licenses—but you get the point.

Microsoft claims Windows Server 2003 is easier to use because it includes a Web server, a media server, an application server, a messaging transport, a directory server and a development framework. That saves time in administering the server, reducing the cost of expensive operators. Microsoft also claims performance improvements in the Windows server increase the price/performance ratio of Windows over the competition, even over earlier Windows editions. Microsoft has recently dominated the Transaction Processing Performance Councils TPC benchmarks and made a respectable showing in the SAP benchmarks (www.sap.com/benchmark).

Its clear Microsoft would win any price/performance category when looking at the cost of goods alone. Since most vendors have a la carte pricing, Windows is less expensive. The price for the enterprise version of WebSphere Application Server, which includes WebSphere MQ, is $12,000 per CPU. The cost of the rest of the stack, with Web server and operating system, is additional. Directory servers, which cost roughly $2 per user, for example, can add substantially to any platform, though most directory servers are now heavily discounted.

But switch parts of the core stack to Linux and Apache, and costs drop dramatically when compared with Windows. Even if users filled out the missing pieces with commercial products, WebSphere solutions with substantial open-source technologies will be less expensive when it comes to upfront capital costs.

Microsoft claims that the entire development stack, including .Net, the Microsoft Office system, Portal, directory server and other applications, make the Windows system lean and mean—and less expensive over time than even a WebSphere-on-Linux system, especially when considering integration costs.

Its a compelling case, but Microsoft erased any advantages it had when it released Windows Licensing 6.0—the only option for corporate customers. Microsoft is trying to get customers to move to a subscription model to spread the costs of computing over two or three years. It obscures the merits of the technical underpinnings in the Windows stack.

The problem Microsoft is trying to solve has been endemic to software vendors. A friend who once worked at Borland said the company wanted to avoid upgrading the Paradox database too fast because it feared retribution from companies that would incur multimillion-dollar costs each time the database revved. Borland could slash costs or keep them the same but slow the upgrades. It didnt want to alienate users, so it cut prices. It nearly went out of business.

Microsoft, obviously, doesnt want to alienate customers, but it does want to charge as much as it can for its products and spread the cost over several years. The difference between Borland and Microsoft is that Borland cut costs in the early 90s, when companies had money. Now that they dont, Microsoft wants to keep prices high. It has advantages with its platform stack. But this time, customers just might not go along with it.