The hard realities of software licensing

The end of the four-year upgrade cycle is nigh.

Friday marks the end of an era for many enterprise IT managers, when Microsoft’s new Software Assurance program kicks in and they have to make some important decisions. Basically, it’s a choice between a two-year maintenance contract or pay full price for upgrades.

Of course, companies could always dump client applications like Office for Linux, or Sun Microsystems’ StarOffice, but it doesn’t seem likely. Server software is a different story, but will IT managers immediately jump over to Oracle or IBM? No.

Software Assurance is the first example of a new way of conducting business in this market, and once it proves successful, it won’t take long for other vendors to follow suit.

There has already been plenty of uproar about the licensing changes in the media. Microsoft has been called unfair. It has been accused of strong-arm tactics that unfairly exploit its market dominance. The company’s representatives have insisted they are giving customers choice, trying to avoid the fact that it’s really a matter of replacing popular choices with those that will increase profits at the expense of those companies that try to stretch their investments farther.

In a conversation yesterday with Dave Willis, Microsoft’s director of small business and channels, he came as close as anyone in Microsoft to admitting that not everyone loves this new arrangement.

“We’ve heard mixed feedback, I would say,” he said. “There’s been positive feedback in terms of simplifying the programs and reducing the number of SKUs dramatically.”

He didn’t elaborate on the more negative feedback, but then, he doesn’t have to. Companies that hold off on upgrades already know they are going to see a steep increase in the costs of their software. At least, we do. Our IT manager was particularly long in the face, reluctantly admitting that we would have to go along with the two-year option. Willis told me early indications are that most companies will take this route.

Almost all the name-calling Microsoft has endured over the licensing changes are on the mark. The company is after more money. It wants to accelerate customer buying habits, particularly as XP makes its debut (In fact, customers must be on the current version of its software to even qualify for the program). In fact, it is doing what almost every other business would like to do. The difference is that it is one company, and not, say, a cartel like OPEC, which gets to dictate pricing as a group.

This goes back to the tired old argument that Microsoft has been unduly persecuted because it has overachieved in a capitalist environment. Without going quite that far, it’s worth considering that much of the outrage over Software Assurance would be diffused if it had happened more collectively. I am reminded of a story I wrote almost a year ago, when I found out that all three major distributors, including Ingram Micro, Tech Data and Merisel, were doubling their minimum order requirements from resellers to qualify for free shipping. Not surprisingly, several of their smaller resellers felt the decision was a sharp slap in the face. The fact that all three distributors seemed to make this change within the same timeframe suggested to me that there had been some discussions between them. But that would be called price-fixing, and they all insisted the timing was coincidental. In the end, after the grumbling, the industry accepted the new rules and moved on. The same thing will happen here.

According to Microsoft, the increase will only affect 20 per cent of its customer base, with at least 50 per cent experiencing no cost changes and around 30 per cent — those that upgrade often — will see a decrease under the new program.

While companies like Microsoft talk about how much they care about their customers, they don’t like to admit publicly that they value some more than others. It’s sort of like playing favourites with your children. But with IT purchases being what they are this year, it should be expected that future licensing agreements will give preference to only the best clients. Equality had as little to do with this as choice. sschick@plesman.com

Share on LinkedIn Share with Google+