WishX Posted July 30, 2002 Share Posted July 30, 2002 Microsoft upgrade plan gets cold shoulder By Joe Wilcox Staff Writer, CNET News.com July 30, 2002, 8:30 AM PT http://news.com.com/2100-1001-947164.html?tag=fd_lede The majority of Microsoft's customers won't be signing up for a controversial licensing plan set to go into effect on Thursday, according to analysts' estimates. Signing onto the plan, which would commit business customers to a two- or three-year annually paid contract guaranteeing the right to upgrade, will be the only way to continue buying Microsoft software at deep discounts. The holdouts have until the end of their business day on Wednesday to sign up for the plan or risk paying full price the next time they buy software from Microsoft. They won't get a reprieve, either. Microsoft has twice extended the deadline for the new program, but a representative said Monday that there would be no more extensions. The reason for stiff customer resistance is simple: cost. The plan, called Licensing 6, effectively raises volume-licensing fees from 33 percent to 107 percent, according to market researcher Gartner. Microsoft also eliminated the most popular means of buying upgrades, which allowed companies to pay when they wanted new software, rather than spend money in advance for software upgrades. Financially, the low number of customers signing up for the plan shouldn't hurt Microsoft. Through a combination of other licensing plans, the company recorded a huge revenue windfall in its most recent quarter. Licensing could contribute some $6 billion in revenue for the company's fiscal 2003. But dissatisfaction with Microsoft's licensing terms could lead customers to consider options such as Linux and rivals to Microsoft's Office business software. "This is the sort of thing that has lost Microsoft a lot of friends," said Directions on Microsoft analyst Paul DeGroot. "A lot of corporate customers feel this thing has one winner: Microsoft. What we've heard from a lot of corporate customers is that they've looked at Licensing 6 and frequently felt that all the advantage falls to Microsoft's side." One technology manager at a large company based in the southwest United States said that the cost of the new licensing plan has created havoc at his company. "Our IT budget has been savaged by this," said the manager, who requested anonymity. "We have lost any hope of (buying) a (new) helpdesk system, a new SQL Server (license) and the hiring of an additional technician. All (are) out the window now." Sunbelt Software, a Windows consulting company, conducted surveys of technology managers, in October and again in March, that assessed the impact of Licensing 6. The surveys, the first of which was done in cooperation with market researcher Giga Information Group, contacted about 4,500 technology managers. "About two-thirds aren't going to sign anything, because it's too expensive for them," said Stu Sjouwerman, president of Sunbelt. "If you look at our current survey, from March, those numbers haven't changed much." Yankee Group analyst Laura DiDio agreed with Sunbelt's estimate of companies staying away from the new licensing plan. But she noted that of the huge number resisting Licensing 6, a good portion chose to renew under the cheaper Licensing 5 contract or had contracts under the old plan that don't expire until 2003 or 2004. So technically, at least some of that two-thirds signed up for an annuity licensing plan, if not the full Licensing 6 plan. "But at the end of that time, they are going to have to decide what to do about Licensing 6," DiDio said. "They delayed their decisions until later." Gartner analyst Alvin Park said it's too early to tell how many customers eligible for Licensing 6 actually signed up for the program. However, "there's no question (that) many customers won't jump on board," he said. Microsoft offers three licensing plans: Open, Select and Enterprise Agreements. The first two are the ones affected by the Licensing 6 changes and by the introduction of the subscription-like "Software Assurance" program. An Enterprise Agreement is already an annuity program, and one that has grown in popularity in part because of the higher cost of Software Assurance under Open and Select licensing plans. "The number of Enterprise Agreement customers has increased from about 15 percent to 35 percent," Park said. Microsoft would not say how many customers signed on to an annuity-licensing plan, although a representative said the company had achieved its internal targets. The company's Chief Executive Officer, Steve Ballmer, acknowledged customer resistance to the new licensing plan during a speech at last week's annual meeting with financial analysts. "I think the fact that our customers probably didn't understand our licensing, as well as they might have earlier, makes the transition and makes the perceived pain actually higher than perhaps the real pain," he said. Overwhelming customer resistance The most controversial piece of Licensing 6 is Software Assurance, through which businesses pay 29 percent annually of the full price for two or three years. This entitles them to upgrade to new software versions released during the contract period. For the majority of businesses, which upgrade software every three to six years, Software Assurance works out to a hefty price increase, as there is no certainty that Microsoft will deliver a product during the contract period. Many businesses in this group have good reason not to sign up for the new licensing program, say analysts. "If you're on a three-year, four-year or five-year upgrade cycle, you're better off without Software Assurance," DiDio said. "The break-even point Microsoft has identified is about 42 months. After that, it costs you just as much as or less to buy a whole new license." About 80 percent of technology managers in the second Sunbelt survey said they had a negative view of the new licensing plan. Thirty-seven percent of respondents said they would not sign up for the new licensing plan at all. Analysts note that in a competitive market, Microsoft would find it difficult to push customers into adopting a plan with uncertain benefits and a huge price increase. But Microsoft owns a huge share of the operating-system market. "It's not possible to quantify the benefits of Software Assurance, because you don't really know what you're buying," DeGroot said. "You don't know when the product is going to come out, so you can't say that, in early 2005, Longhorn--the next version of Windows--will be on our desktops. With Software Assurance, you simply cannot predict what you are going to get for that money." In that sense, Licensing 6 could backfire on Microsoft, because companies have more incentive to make sure the company's software ships on time. So far, Microsoft's record for on-time releases isn't good, DeGroot said. Extremely long story. Please follow link to continue reading. Link to comment Share on other sites More sharing options...
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