October 9, 2002 10:35 AM PDT

Ballmer defends Microsoft license plan

ORLANDO, Fla.--Microsoft CEO Steve Ballmer on Wednesday defended the software maker's controversial licensing plans and its ever-changing consumer strategy.

Ballmer, speaking here at a conference sponsored by market researcher Gartner, acknowledged that Microsoft's recent decision to implement a new software licensing plan has angered some customers. "Sometimes when you clean things up and simplify things, you wind up costing some customers more, and that's problematic," he said.

The licensing plan, announced in May and implemented earlier this month, compels customers to switch to an annuity-based model, in which they annually pay up front for upgrades under a two- or three-year contract known as Software Assurance. This effectively raised volume-licensing fees from 33 percent to 107 percent, according to Gartner.

Despite early resistance, Ballmer said, Microsoft has "seen a very high percentage of customers sign up" for the plan.

Ballmer defended the effort, saying that it smoothes out some of the rough spots of earlier licensing schemes. "We recognize the need to assure (customers) that we are delivering continuous value as opposed to lumpy upgrades. We understand that for some customers it represents a less good value than it did a year ago," he said.

Ballmer said Microsoft constantly reviews its licensing policies. "We are doing a full relook at end-user licensing agreements. We want to make sure we simplify. We have to be very careful to listen to the feedback we get and keep costs constant or reduce them," he said.

Separately, Ballmer told CNET News.com that, on the subject of a licensing revamp, "I'm not sure anything is going to happen. But many customers tell us our end-user license agreements are too complicated. We want to simplify, but only if it's a real win for our customers."

Ballmer defended Microsoft's pricing of Windows in relation to the cost of new PCs. Despite a precipitous drop in the price of new PC hardware--new machines can be had for as little as $199--the cost of Windows remains consistent. Ballmer argued that some new PC prices are artificially low. "Our price for Windows for that machine has been invariant for seven or eight years. We deliver a lot more value now than then. We get maybe $50 for a copy of Windows. Somebody is subsidizing that hardware (price)," said Ballmer.

In response to a suggestion that Microsoft price Windows in proportion to the price of new PCs, Ballmer bristled. "The difference is that someone gets to pay $250 (for a new PC) for the application set that XP has, the fit and finish. Or the machine costs $230. Will that drive demand? No. Will it wipe out our ability to do innovative R&D? That would happen," he said.

But Ballmer said that Microsoft is considering per-user licensing of software, as opposed to licensing per device, as in the current model. "We agree that it would be nice to have options for users and devices in our licensing. But how do we do that and not have the level of complexity explode?"

On the subject of Microsoft's various initiatives aimed at the consumer market, Ballmer said the software maker is still trying to find a winning formula. From a business point of view, the company's consumer plan "is getting stronger every day. For shareholders, there's lots of room for improvement," he said.

But Microsoft will keep trying. "One reason that the PC got popular in business is that it got popular with consumers. We will keep going and keep investing," he said.

One new consumer area for Microsoft is in supplying wireless networking gear. But Ballmer doesn't see Microsoft reaping huge profits from what is arguably a commodity market.

"We have a team that has a lot of ideas, (from) how to add software to how homes get networked," he said. "Because we have a broadband service, they said there are some interesting things they can do. Bill (Gates, Microsoft's chairman) and I said give it a try. Get your me-too software going and see what we can do."

 

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