May 27, 2003 10:40 AM PDT

Microsoft tweaks troubled licensing plan

Microsoft angered its customers and now it wants to make good.

That's the message that the company is seeking to convey with an overhaul to its controversial Software Assurance purchasing program. Microsoft said Tuesday that it will throw in several services, including training and support, with the cost of software licenses, in an effort to encourage customers to buy into the program.

Starting in September, the services will be available free to Software Assurance customers only, covering both desktop and server software.

The services include online training through Microsoft or accredited training companies; extended customer phone and Web support for problem resolution; and access to Microsoft's bug-tracking information service, TechNet. Customers also will have tools to better track their licenses and will have the right to use Microsoft Office on home computers, according to the company.

Microsoft introduced its Software Assurance program in May 2001 but delayed implementation for more than a year after a customer backlash. Customers participate in the regularized payment plan through Select License 6.0, Microsoft's volume licensing contracts for corporate, government and academic organizations.

The Software Assurance plan effectively hobbled a pay-as-you-go approach through which companies bought Microsoft software at a discount when they upgraded to new versions, at their own pace. Now, Microsoft customers are compelled to pay an annual fee, which can be applied to future upgrades.

Microsoft argues that the regular payments save its customers money if they upgrade their software products within three-and-a-half to four years.

But several large customers balked at the changes, because they would have wound up paying more. A study by research firm The Yankee Group and Sunbelt Software found that 60 percent of Microsoft customers saw their costs go up after buying into Select License 6.0.

One Microsoft customer said that the services Microsoft added to the Software Assurance program made the overall plan significantly more attractive. Services such as customer support and training are often included with the purchase cost of a software product. The enhancements to Software Assurance bring Microsoft in line with other software providers, said David Burke, chief information officer of Raycom Media.

"The costs of the licenses are the same, but they've added so much more value. Before, it was harder to justify the costs," Burke said. "It's more of a bundled solution (now) than a pure software version upgrade."

Microsoft has a strong incentive to make its Software Assurance program catch on with customers. The company is eager to create a steadier revenue stream from its software products, particularly its cash cow, Office, and its desktop operating system businesses. Financial analysts closely watch the deferred revenue that the company has achieved through converting customers to an annual-payment schedule.

"Our relationships with customers were stressed by the handling of Select 6 licensing, and this (announcement) is about reconnecting with them," said Rebecca LaBrunerie, Microsoft's product manager for worldwide licensing and pricing. LaBrunerie said Microsoft surveyed 2,500 customers in the past year in an effort to find ways to mend fences with them.

Not for everyone
Microsoft executives also, for the first time, said Software Assurance is not the right choice for everyone. But in general, LaBrunerie said, large companies with complex software installations that want to add a more predictable payment schedule to their software bills will be most interested.

Microsoft said that it also needs to improve its communications on the purchasing program. Based on feedback from customers over the past year and a half, the company found that it needs to better train its salespeople with Software Assurance, said Kevin Johnson, group vice president for worldwide sales, marketing and services at Microsoft.

"This is not about changing the price. This is about providing added value and enhancements to customers, and we want to do a great job communicating that," Johnson said. The company expects its sales force to be versed in the latest program changes by September.

A Microsoft partner said the changes in the Software Assurance plan makes his company's job of selling Microsoft significantly easier.

"Before it was like saying, 'You need to do this or else,' but now we have this opportunity to get a lot more," said Ken Heptig, co-president of reseller Software Express. Software Express now offers customers the choice of going with Software Assurance, depending on when they plan to refresh their Microsoft software, he said.

Microsoft said that, in general, companies will save money on the license costs if they intend to upgrade old software within three and a half years. But the new set of added services could entice customers who have an even longer time frame for upgrading, said Laura DiDio, an analyst at The Yankee Group.

"Microsoft has realized that the economy is not getting any better and they need to be flexible," DiDio said. "They're showing a real willingness to work with the customer that hasn't been there in the past."

The expansion of services around Software Assurance plays into Microsoft's plan to set itself apart from other operating systems providers, notably companies that offer Linux, said Al Gillen, an analyst at IDC. It also gives salespeople another reason to try to sell the program to companies that initially stayed clear, he said.

"They're trying to distance themselves from the comparative simplicity of other (operating system) vendors," said Gillen. "The more overall value that Microsoft puts in the pockets of customers translates into helping keep customers in their camp."

 

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