Monday, February 09, 2004

Customers pushing back against Microsoft licensing program

It seems that Microsoft is encountering quite a bit of resistance to its Software Assurance program, where customers pay an annual license fee in return for getting upgrades to Microsoft system software products, such as Windows and Office, at no charge. InternetWeek reports,
"The thing they're having problems with is getting renewals on enterprise agreements," said one financial analyst, noting that customers are holding back on software-assurance licenses and playing the Linux card to get discounts. "June is the big test. Everyone is lined up [for renewals] in June." ....

"Software Assurance is fundamentally broken," said one East Coast partner who requested anonymity. "Microsoft claims that three years of Software Assurance non-perpetual upgrade rights is less pricey than negotiating a product upgrade in year four. Given what's happening with [its] deferred revenues, it's hard for me to believe Microsoft will stick it to me on the license upgrade if I choose to defer purchase."
I predicted over 18 months ago that Microsoft's attempt to increase its revenue through maintenance agreements was going to have unintended consequences. As the cost of computing hardware continues to drop, Microsoft's products are making up an increasing percentage of the total cost of ownership of a desktop machine. There has to be a limit somewhere. I continue to believe that economics will drive more and more business customers toward Microsoft alternatives, such as Linux and other open source products. Microsoft is already cutting special deals to keep large customers from defecting. As customers just say no to Microsoft's money grab, watch for Microsoft to cut license fees in general.

Update: Paul DeGroot, analyst at Directions on Microsoft, points out the advantages of not being committed to stay with Microsoft for the duration of the maintenance period. In a ComputerWorld article, he says,
"If you don't think Microsoft is going to come out with anything compelling enough that you will want it, you will wait. The industry is maturing. People are happy with older products," he said. "Without locking yourself in for an upgrade, it becomes easier to switch away from Microsoft. My guess is that the Linux desktop will look a lot better three years from now than it does today."
I think this is a bigger deal than people generally recognize.

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