Let's face it: Microsoft software licenses are expensive. And that's just the way the folks in Redmond want it. Otherwise, that $62 billion a year revenue stream might drop to a mere $52 billion.
But customers shouldn't cry for Microsoft. Instead, if they choose Microsoft products over cheaper open source alternatives, they should take a hard line in negotiations to get as much as they can for as little money as possible.
[COST CONTROL: 5 tips for managing Microsoft licensing costs]
But managing software licenses may be just as difficult as managing the software itself. That's why Forrester Research just came out with a report titled "Consider These Five Criteria When Choosing a Microsoft Volume Licensing Program."
The report details five questions customers should ask before signing a new license agreement, focusing primarily on Microsoft's Enterprise Agreement and Software Assurance subscriptions. Let's take a look at each one.
1. What price can you get?
This first question may seem obvious, but Forrester analyst Duncan Jones says too many customers fail to examine their options. "To get the best price, the buyer must be able to walk away from an inadequate EA (Enterprise Agreement) offer and go for a cheaper alternative, be it buying from the Select Plus program, delaying upgrades, or migrating to competing products," Jones writes. "Similarly, there is no need to reject the EA program until you've given the Microsoft sales team a chance to offer you a compelling deal."
For products like Windows and Office, Enterprise Agreements may offer the best deal for businesses with at least 250 PCs, according to Forrester. The EA includes Software Assurance, which provides access to future product versions, the ability to move licenses from on-premises deployment to a cloud network, and other benefits. There is also a leasing version of the EA called the Enterprise Subscription Agreement.
For a couple of examples, A Windows Select Plus license costs $147 while a Windows Enterprise Agreement license costs $186. An Office Professional Select Plus license costs $399 and an Office Enterprise Agreement license costs $636.
2. When will you upgrade again?
The Enterprise Agreement and Software Assurance add to the price of a license, but the ability to upgrade -- say, from Windows 7 to Windows 8 -- without paying a second time may make it worth it.
Software Assurance agreements typically last three years, giving customers product upgrade rights if a new software version is released during that time. Then again, Microsoft may not come out with a new version, or your organization may decide the cumbersome process of upgrading isn't worth it.
"You are in effect making a bet on whether or not your organization will want to upgrade to the next product versions that Microsoft releases," Forrester writes.
With the Enterprise Agreement and Software Assurance, you're essentially "getting two versions for the price of one and a half."
Also, you don't have to make the upgrade during the three years of your Software Assurance contract. "For example, if you have a Desktop Platform EA ending in 2011 you will have rights to Windows 7, Office 2010, and CALs [Client Access Licenses] for Windows Server 2008 R2 even if you don't renew it. You can upgrade at any time in the future," Forrester notes.
Corporations often take several years to consider, plan and implement a companywide software upgrade, so the ability to upgrade after SA coverage expires is important.
"Few companies upgrade every three years as Microsoft releases new versions, but an EA removes one obstacle: the challenge of securing budget to buy a complete set of new licenses," Forrester notes.
3. How does your company budget for and fund IT investment?
The process of securing approval for a major software upgrade can vary depending on whether a company handles all technology budgeting centrally, or spreads the decision-making process across many autonomous business units.
"Financially empowered group sourcing executives" can make decisions without worrying about politics, but companies without a centralized purchasing system may struggle to bring disparate business units to agreement on budgeting.
"One public sector procurement director told Forrester, "'I'll never be able to persuade the departments to put SA back in their budgets if I ever let them take it out,'" the analyst report states.
4. How much are favorable licensing rules worth to you?
Microsoft periodically adds benefits to Software Assurance (or, restricts benefits to Software Assurance, you might say) to convince customers to upgrade.
The questions is, are you willing to pay a premium for what Microsoft offers? Besides upgrade rights, Software Assurance provides access to Windows 7 Enterprise edition, the right to extend licenses to virtual desktops and application streaming instances, and enhanced ability to deploy a standard desktop image across a company's user base.
Unfortunately, the rules regarding virtual desktop licensing are unclear, so customers need to do some legwork to get the right information, Forrester says.
While an Enterprise Agreement might "be the cheapest way to support large VDI or streamed environments, ... there is a major potential gotcha, which is that employee-owned devices that employees use regularly for business purposes might count as qualifying desktops," Forrester writes. "Microsoft might insist that you include, for example, the home PC of someone who frequently uses it to work from home. Unfortunately some Forrester clients have received erroneous advice on this point from Microsoft reps and LARs [large account resellers], so you need to be careful."
One possible solution: Don't buy the Enterprise Agreement, and get Software Assurance only for PCs whose primary users need access to virtual desktops.
5. Do other Software Assurance benefits sway a close decision?
If your decision is still unclear after weighing the previous four questions, there may be some less well-known Software Assurance services that might make the extra cost worth it.
"Microsoft has structured the SA program to help you deploy and use its software more effectively," Forrester writes. "For example, it includes packaged services, such as SharePoint deployment planning, that reduce later problems and support incidents."
During negotiations, customers can make trades -- for example, getting extra hours of support and training in exchange for dropping other benefits.
It's important to be skeptical of salespeople's far-fetched claims about the value of each benefit, but Forrester predicts that upcoming changes to Software Assurance will make it harder for customers to turn Software Assurance down.
Possible changes include adding more products and services to Software Assurance, and upgrading products more frequently. Recent changes to Microsoft's licensing scheme have made it easier to deploy software in cloud-based services, but Microsoft doesn't give the same rights to customers in less expensive licensing programs.
"Organizations that adopt mobility and cloud rapidly will find it harder and harder to stay out of the SA program," Forrester concludes.
Follow Jon Brodkin on Twitter: www.twitter.com/jbrodkin
Read more about software in Network World's Software section.
This story, "5 Questions to Ask Before Buying Microsoft Licenses" was originally published by Network World.