Microsoft Users Bristle at License Change

Changes to Microsoft's software licensing system taking effect in August continue to draw resistance from customers, some of whom said they fear higher prices and pressure to upgrade their software more frequently.

The new plan asks customers who buy licenses in bulk to pay an annual fee to cover the price of all upgrades for software used during their contract period. Microsoft argues the plan simplifies the licensing process for customers and will save them money in the long term as it rolls out updated products in its .Net software family.

But critics say the plan puts customers under pressure to upgrade their software in step with Microsoft's releases in order to get the full value of the plan. Microsoft typically upgrades its products every 18 to 24 months. Some customers say they don't want to upgrade their software with each new version, particularly if the software in place is working fine.

Changing Habits

"What is frustrating for so many of us is the way Microsoft forces us into getting new products," said Dennis Kirk, manager of information technology for the State of Oregon's Department of Environmental Quality.

The department typically upgrades its software every four or five years, and recently migrated to Windows 2000 on its desktops and servers.

"We've got a good five years out of Windows 95 and it did fine," Kirk said. He expects to leave Windows 2000 in place for a few years. "We're going to try to get the most mileage out of all these products as we can."

That sentiment may prove costly, however. Like other organizations, if the State of Oregon doesn't adopt Microsoft's new licensing scheme by the July 31 enrollment deadline, it may face higher upgrade costs when it eventually does refresh its software. That's because Microsoft's popular upgrade licensing plan will be retired when the new system is in place. Under the expiring deals, customers got discounts on upgrades even if they skipped intermediate versions.

"We used to be able to invest in a Microsoft product and pay an upgrade fee. You had some value in what you bought from them," said Kirk, who helps manage the state's nearly 50,000 seats. "Today, after four years you have no value in the product you bought. You're no different than anyone off the street who wants to buy software."

Costs Increase

Customers who don't migrate to the new program by July 31 won't be excluded from the program altogether, but they won't be eligible for an early signers' discount. Microsoft is urging them to at least sign up for a similar program called Upgrade Advantage, characterized as an interim offer that lets customers convert to Software Assurance later.

Faced with the impending deadline, many customers are unhappy with or confused by the new scheme, market researchers say. For example, an informal poll by Gartner just three months before the deadline showed only about 30 percent of Microsoft customers had signed up for the new licensing plan. Another 30 percent were still pondering the switch.

"If there's one word that I use to sum up what I'm hearing from customers, it's resentment," said Gartner analyst Michael Silver.

According to Gartner research dating back to last May, soon after Microsoft first detailed its Software Assurance plan, some corporate customers that upgrade every four years estimated they will pay 68 percent to 107 percent more under the Software Assurance plan.

In another study, 41 percent of businesses polled said can't afford to switch to Microsoft's new plan, says Laura DiDio, principal analyst with research firm Information Technology Intelligence. That study surveyed 1400 Windows customers in April.

Most of those who fear the cost increase are small and medium-sized business with less than 1000 seats, she said. "This group feels that they are particularly hard hit and that they don't have much leverage," DiDio said.

The purchase price of the software does not necessarily reflect the total cost of adopting it, analysts noted. Training users, installing the software, and testing for compatibility with internal applications adds to the cost of installing new software.

"People will find themselves in a quandary. They will have to upgrade before they are ready, and that will cause some problems," said Dan Kusnetzky, vice president of systems software research at IDC.

Seeking Alternatives

Customers have had nearly a year to prepare for changes to Microsoft's licensing agreements, since the deadline was twice pushed back. Still, many organizations have not assessed the actual costs of Microsoft's various licensing options, which could help them negotiate better deals, DiDio said.

Microsoft says the Software Assurance program simplifies the buying process for customers. The switch was inspired in part by changes in buying trends, including a shift toward shorter upgrade cycles. Many of the changes also help facilitate Microsoft's plan to sell software by subscription.

Some organizations, including high-tech companies and schools, depend on having access to the most recent software versions in order to remain competitive, some Windows customers said.

Southeast Technical Institute in Sioux Falls, South Dakota, recently switched to Office XP and is planning server migration to Windows .Net when it is released later this year, says Dean Sheley, network administrator.

As an academic institution, Southeast Technical gets deeper discounts from Microsoft than many customers. Nevertheless, Sheley described Microsoft's licensing system as "a pain," and said he has considered replacing some Microsoft software with alternatives such as Linux.

"Right now we're really up in the air as to where we are going to go with our software," Sheley said.

Indeed, one side effect of the licensing changes is a revived focus on alternatives. Some analysts say the unrest among Microsoft customers could open new opportunities for competitors such as Sun Microsystems, which this week rolled out a new version of its StarOffice desktop productivity software.

"The percentage of customers who say they are actively looking to replace Microsoft has gone up," DiDio said. "When it comes down to it, some people aren't going to be able to do it (migrate off of Windows and Office). But where Microsoft can be replaced, it's become a real fashionable thing to do."