News

Users See Some Silver Linings in Redmond's New Licensing Scheme

• By Scott Bekker
• June 05, 2001

"From what I've seen, it will actually result in a lower software cost if upgrades take place every 18-24 months, but now the onus will be on Microsoft to make it much easier -- and more beneficial -- to upgrade Windows and Office on such a tight schedule," comments Andrew Baker, an IT manager with insurance company and financial services organization American Int'l Group Inc. (AIG, New York, N.Y.). A long-time administrator of Windows NT and Windows 2000 systems, Baker acknowledges that he has "mixed" feelings about Microsoft's proposed changes.

Under the provisions of the new plan, the software giant will heavily promote a subscription-based licensing model that provides for, among other things, so-called "Software Assurance" contracts that require customers to pay operating system and application software subscription fees on an annual basis. In addition, Microsoft will eliminate all "Version," "Product" and "Competitive" upgrades and also will begin selling software directly to enterprise customers, rather than through intermediary vendors such as resellers, services firms or systems integrators.

For his part, AIG's Baker says that subscription-based licensing plans - especially those such as Software Assurance which encourage frequent upgrade cycles - aren't necessarily crafted in the best interests of enterprise IT organizations. "Companies want to get some return on their investment, and not spend all their IT resources in constant upgrades and constant training on the same basic software," he observes.

Microsoft has also said that it will continue to sell software the old-fashioned way - i.e., for a one-time, non-recurring fee (dubbed a "Perpetual" license). At the same time, however, the software giant confirmed that it will eliminate its enormously popular "Select Agreements," under the terms of which enterprise customers can purchase Microsoft software through maintenance contracts or by means of the now-discontinued "Version" upgrade plans. Microsoft's new Software Assurance contracts will take the place of Select Agreements.

Bonnie Miller, a network server analyst with an educational cooperative based in Everett, Wash., confirms that the school district for which she currently works is an existing Microsoft "Select" customer. Ironically enough, Miller says that her school district evaluated a similar subscription-based Microsoft program - dubbed "Microsoft Schools" - but ultimately rejected it because of cost concerns.

"[We] came to two conclusions at the time, [the first of which was that] this program would end up costing more after three or four years," Miller explains, noting that schools in her district commonly use computers until well past their normal life-cycles of three-to-five years. "It's much more difficult for the school district to write in a yearly software budget that may change each year [as computers are added] than to have chunks of money spent at once for software as it was needed and as money is available."

Unfortunately for Miller's school district and for other current Microsoft Select shops, Software Assurance will probably constitute the only cost-effective alternative to the hefty prices that Microsoft is expected to charge even enterprise customers to purchase its software outright. Some IT managers are bracing for the worst.

"I'm certain they will initially make it much more expensive to retain a perpetual license, and this will only fuel the belief that they're lining their pockets at the expense of, and without regard for, their customers," avers AIG's Baker. "I suspect that their larger customers will still wield enough clout to get better deals, however, and that the folks who will be hurt the most will be the smaller shops."

At the same time, argues William Lefkovics, a systems administrator with the AscentrA Group of Companies, a Las Vegas, Nev.-based health care provider, the provisions of Microsoft's new subscription-based licensing plan could be a boon to some companies, large and small alike - including his own.

"In cases where the upfront cost of moving forward to new software or operating systems is prohibitive, the new subscription-based licensing might provide some relief," he speculates. "We can't afford to migrate to Windows 2000 across the board, but we might be able to enter into a subscription."

Kevin Jones, an administrator with Manufacturers Alliance/MAPI Inc., an Arlington, Va., policy research organization, says that he views Software Assurance as a kind of double-edged sword. "The bottom line is that if you plan to maintain your operating systems current at all times, then the Software Assurance program will save you considerably on costs," he explains. "However, if you do not plan to keep up with the leading edge operating systems then Software Assurance loses its value."

Jones also speculates that IT organizations which haven't yet upgraded from older versions of Windows - such as Windows 9x or Windows NT - could exploit Software Assurance to do so at very little initial cost. Unfortunately, Microsoft actually requires that IT shops that subscribe to Software Assurance must first upgrade to current versions of its operating system (Windows 2000, Windows Me) or application (Office 2000) software. This means that customers that are still running Windows 9x or Windows NT - or which have standardized on older versions of Office - must separately purchase upgrades for their software.

Software Assurance could ultimately provide some unanticipated benefits for most of Microsoft's customers - even as it turns up the heat on the software giant itself, says Roger Seielstad, a senior network administrator with Peregrine Systems Inc., an Atlanta-based consulting and software firm that specializes in infrastructure resource management.

"If the trade off for a higher cost of software acquisition and support is a corresponding increase in the level of support from Microsoft, it's a trade off I think will be worth making," he comments.

In Seielstad's account, a maintenance and support licensing scheme like Software Assurance could force Microsoft to adopt a more "regimented schedule for releasing service packs and upgrades." As an example, Seielstad points to the software giant's spotty record on delivering Windows NT 4.0 service packs in a timely fashion - the intervals between service pack releases varied from two months (SP2) to almost a year-and-a-half (SP4). He contends that such practices won't wash with Software Assurance customers.

"Companies won't tolerate paying for a full year of support for a few hotfixes, most of which aren't applicable to their environments. They will expect a return on their investments," he comments. "The current licensing model doesn't offer Microsoft the incentive to drive for high quality in existing products, as their revenue model currently is driven by sales alone, and new products drive sales." -- Stephen Swoyer