Microsoft Licensing

Licensing 6.0 is getting long in the tooth for a Microsoft volume licensing program. As you're planning for SQL Server 2005, Windows Server 2003 "R2," Windows "Longhorn," Office 12 and other releases, do you need to be simultaneously watching over your shoulder for Licensing 7.0?

Not according to Cori Hartje, director of marketing and readiness for Microsoft's Worldwide Licensing and Product group. "We don't have any plans for [Licensing] 7.0," Hartje said. "We're not working on anything revolutionary in that regard. We want to fine tune what we have."

In Microsoft's view, the current program is working. Licensing 6.0 was formally rolled out in mid-2002, and it has been updated periodically since then. Microsoft reports renewal rates for Enterprise Agreements are in the 66 percent to 75 percent range. Hartje noted that most observers focus only on maintenance. "We're also always selling just new licenses," she said.

The 25 percent to 34 percent of customers who cancel do so for many reasons that don't necessarily indicate dissatisfaction with Microsoft's volume licensing programs, Hartje said. "Sometimes customers go through changes in their business: mergers and acquisitions, tech strategies, upsizing/downsizing. I don't think that there's one answer that we have found that's consistent," Hartje said.

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In any case, a real benchmark financial quarter is underway. The Microsoft fiscal year, which will end on June 30, is a test case for Licensing 6.0, Enterprise Agreements and Software Assurance. It is the first year without substantial revenues from the old Upgrade Advantage licensing contracts. Microsoft saw an $881 million decline in earned revenue from Upgrade Advantage programs in the nine months ended March 31, according to the company's most recent 10Q filing. "The reduction in Upgrade Advantage revenue has been partially offset by customers entering into other licensing agreements," according to the filing. [emphasis added]. It won't be possible to assess how well Microsoft has really done with its four-year-old licensing mix until the fourth quarter results are in. "Q4 typically is our heaviest quarter," Hartje said.

For now, Microsoft plans minor adjustments and tweaks to the program, similar to the tinkering the company has been engaging in almost from the beginning of Licensing 6.0. Hartje counts Microsoft's top licensing priority as "business simplification." These will be similar to the changes disclosed about a week ago to simplify the Product Use Rights document. Microsoft pared about 100 pages of documentation down to 40-some pages, taking 70 distinct products and grouping them into nine categories. "We need to do a lot more of that, and we are going to do more of that," Hartje said. "It's more of a journey, it's more of a bigger picture. Nothing in itself is overwhelmingly large. The aggregate is working toward that goal for customers."

Meanwhile, Microsoft is also working on better desktop support and more flexibility. Whatever comes will apply backward to customers who have already signed up for Software Assurance. "If we make it better, then they get those benefits," Hartje said. She compared the backward compatibility to how Microsoft handled its biggest change to date to the program, when it added 14 benefits to Software Assurance.

As for those September 2003 Software Assurance add-on benefits, some customers report putting them to good use.

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Tom Grahek, director of platform engineering at Fair Isaac, is responsible for server and workstation environments for all of the company's 33 offices in eight countries and manages the company's Microsoft Enterprise Agreement. His company has been able to get value out of the Home Use Rights for Office, Training Vouchers, Problem Resolution Support and TechNet Plus Subscriptions benefits from Software Assurance.

"Within the first year of promoting it, we had 10 percent of our work force taking advantage of the program," Grahek says of Home Use Rights for Office, the Software Assurance benefit that allows companies to give employees a complimentary copy of Office for their home computers. According to Grahek, the program has simplified management, led to employees who are more familiar with the software and therefore less reliant on the IT help desk and has been hands-off for IT.

Some of the new Software Assurance benefits are also reducing Fair Isaac's Microsoft support costs and even MSDN subscription costs. By managing free incident support included in both Software Assurance's Problem Resolution Support benefit and TechNet Plus subscription benefit, Grahek has been able to reduce the number of paid support calls to Microsoft.

On the MSDN subscriptions, Grahek says, "In the past, a lot of infrastructure staff would sign up for MSDN to get full evaluation versions. That's huge, because I have been able to move 10 of my employees from MSDN to TechNet Plus, which is basically free under Software Assurance. They get full versioned licenses for evaluation purposes and the right to submit two technical support incidents, as well, per year, which again reduces the amount I have to pay."

Grahek has told Microsoft he'd like to be able to sign up more of his IT administrators for Problem Resolution Support, the current interface limits an organization to four administrators. Overall, Grahek says, "I like the direction that they're going. I would encourage them to continue to expand the breadth and the amount of benefits that they offer."

Rob Enderle, principal analyst with Enderle Group, says customers in general have become a lot more comfortable with the Software Assurance program. Enderle also feels Licensing 6.0 succeeded in eliminating a lot of the animosity that built up around Licensing 5.0, which carried a surprise price hit and other problems.

Enderle says Licensing 6.0's primary vulnerability is its complexity. "No matter how you look at it, these pricing systems are very complex. There has to be a way to overall better automate the entire process. They're working on it for everything they're worth."

To Enderle, the solution seems to be a services model. "I honestly think they ought to step back and say, 'We ought to make it a service.' Make it an annual access thing." Such an approach could eliminate some problems surrounding piracy, and over time make those customers happier who are currently irked over the sense they're paying for software they're not using.

Without that kind of service-oriented overhaul on the horizon, however, Microsoft may find itself under intensifying pressure from Wall Street over the next year to fiddle with licensing as a revenue source as the Longhorn and Office 12 delays affect the company's revenue growth.

"Without the sustaining marketing skills [to drive Windows XP/Office 2003 sales], and without a new product to drive a wave, or with slow [adoption of Longhorn], Microsoft's got some tough years ahead. It might force them to sit back and say, maybe we need to fix this licensing," Enderle said. "We will hope enough of us will be raising our hands and saying, 'That's a really stupid idea, don't do that.'"