October 4, 2001 12:30 PM PDT

Survey: Anger at Microsoft's new licensing

Most corporate customers are unhappy with looming changes in Microsoft software-licensing programs, and many would consider switching to competitors' products, according to a survey released Thursday.

Conducted by market researcher Giga and Windows NT/2000 integrator Sunbelt Software, the survey of 4,550 technology professionals found that 80 percent of those polled expected to pay more for Microsoft software under the controversial new programs. About 42 percent said their Microsoft software costs would increase anywhere from 20 percent to 50 percent. Of the remainder, 19 percent said their costs would double or triple, while 7 percent saw no change and another 2.6 percent expected a decrease.

The survey also found that 36 percent said they would consider alternative products in light of the changes.

The high number of potential defectors is likely an emotional reaction, said analysts, but it's a further indication that Microsoft may have blundered when it enacted new licensing provisions Oct. 1.

The new licensing program discontinued the most popular means by which businesses buy Microsoft software for desktops and back-end computer operations. Under the new programs, customers don't simply buy software and worry about upgrades in the future. Instead, they are placed in a program that commits them to upgrading every two years. According to market researcher Gartner, the program will raise prices anywhere from 33 percent to 100 percent. Microsoft has also peppered the contract with contingencies that get customers to switch to the new maintenance deals sooner rather than later.

Microsoft offers three main volume-licensing programs: Open, Select and Enterprise. The licensing plans have in the past offered companies more freedom to buy software in volume at discounted prices at a somewhat independent pace. The companies benefited from lower prices, while Microsoft gained by creating a fairly easy upgrade path.

But in recent years, companies have been upgrading less frequently, compelling Microsoft to adjust its licensing program accordingly. Rather than let companies choose to upgrade when they want, Microsoft wants to lock licenses into two-year maintenance contracts--a precursor to the company's forthcoming .Net software-as-a-service strategy for selling software on a subscription basis.

Stu Sjouwerman, president of Clearwater, Fla.-based Sunbelt Software, one of the world's largest Windows NT/2000 system integrators, said the Giga/Sunbelt survey reveals some clear trends.

"This is a self-selecting survey," he said. "It wasn't a half-a-million plus people, and obviously you cannot know 100 percent if these are just the people who are pissed off that decided to fill it out.

"At the least, you can say Microsoft hasn't made any friends with their new...licensing."

Microsoft spokesman Dan Leach dismissed respondents' dissatisfaction with the licensing program as a misunderstanding.

"It confirms what we know, that we need to do a better job communicating the improvements...of making software easier to buy in bulk and administer," he said. "We need to do much more to help customers understand our program."

Giga analyst Laura DiDio also made it clear that the analyst company and Sunbelt Software did not conduct a random survey but polled customers by phone and e-mail.

DiDio estimated that about 50 percent of the survey participants were smaller companies, while 13 percent were larger Microsoft customers subscribing to combination Select and Enterprise agreements.

"So I would say that it's a representative sampling," she said.

Thanks, but no thanks
The survey found stiff resistance to switching to the new licensing plan, with 32 percent of respondents planning to pass on it and 41 percent saying they would do nothing. Only 7 percent of respondents said they planned to move to the new licensing scheme.

Those companies taking a pass on the program are doing so mainly because they can't afford to switch. Microsoft announced the licensing change in May, near the end of the company's 2001 fiscal year but midway through the fiscal year for most customers, many of which had not budgeted for the increases.

"Microsoft should have, as far as I'm concerned, done a more thorough educational campaign--that's step No. 1," Sjouwerman said. "And...they should have given people more time to actually do their auditing."

According to the report, 51 percent of those polled asked that Microsoft delay the new licensing program until May 31, which would allow them more time to budget for the price increases and develop a transition strategy.

But Microsoft's Leach argued that Microsoft had to set a deadline, even if that couldn't meet the needs of all customers.

"You're constantly looking for a balance, of how you're balancing the complexity and the simplicity in the time we need," he said. "The fact so many customers are showing up, at least in this survey, having concerns or confusion shows just in part how complicated it has become. That's one reason we're trying to make the program simpler, easier to understand and easier to administer."

For those companies forced to pass on the new licensing program, future Microsoft products won't be cheap. Rather than getting a break on upgrades, the companies will be forced to pay full cost.

Don Fitzpatrick, president of Brookfield, Wisc.-based InterNetworX Systems, said that because of the "extra complexity and cost" of the new licensing plan, "Windows 2000 and Office 2000 are likely to be the end of the line in the cycle of upgrading to a new version every few years."

His larger concern is that Microsoft is gradually moving to selling software on a subscription basis.

"In the face of prospective annual licensing fees for software that no longer needs significant functional enhancement, our more forward-looking customers and prospects are beginning to ask about Linux desktop alternatives," Fitzpatrick said.

Giga's DiDio warned companies not to take Microsoft's future licensing plans lightly.

"People should not be thinking now they're safe with their Select or Enterprise agreements," she said. "They're not safe. What happens when .Net comes in 18 months, 24 months or 36 months? That's going to change the delivery method. That's a premium product, and they're going to charge a premium price."

Through the product activation feature introduced with Office XP and Windows XP, Microsoft would have the capability of turning off software when companies failed to pay under a subscription program.

"Isn't that scary," DiDio said. "Software as a service, kind of like the utility company or the telephone company."

Weighing the options
According to the Giga/Sunbelt survey, companies contemplating alternatives to Microsoft software are considering a number of options, such as sticking with Novell NetWare on their servers or replacing Microsoft Windows NT and Internet Information Server Web server software with open-source Linux and Apache. Sun Microsystems' StarOffice and Corel's WordPerfect dominated the considered options for replacing Microsoft Office. Some companies are even considering dumping Windows on the desktop in favor of Linux.

"Whenever a company or client is faced with dramatically greater costs for a commodity item--including basic office software for PCs--it is always wise to review your true needs against what is offered in the market," said Bill Boyd, principal consultant with PwC Consulting in Tampa, Fla.

"Whenever we advise our clients, we identify and conduct a cost-benefit analysis of at least three alternatives, one of which is always 'do nothing.' There are viable alternative products for the Microsoft environment including products from Corel, Sun's StarOffice, Apple's AppleWorks, and even Microsoft's own Works," Boyd said.

Still, DiDio doesn't really expect more than a third of those polled to dump Microsoft products. "That's an emotional response. They're upset," she said. But she does anticipate at least a "couple percent" of companies to make a move.

Technology Business Research analyst Lindy Lesperance said the survey results are not surprising, given the longer upgrade cycles companies have adapted.

"The trend we see in the market is for longer cycles, that they want to keep PCs around longer," she said. More typically, companies would rather make software upgrades with new PC purchases, which is "moving toward the three-year to four-year range. End users are tailoring new PC purchases to job function now, recognizing not everybody needs the latest and greatest."

Microsoft says companies upgrading every two years will see a 19 percent decrease in software costs. "But generally that's not what people are doing," said Gartner analyst Neil MacDonald. "It's more like three or four years, and those people are going to see a substantial increase."

In that sense, Microsoft is not unreasonable in asking customers for more money, Giga's DiDio said.

"Microsoft has looked and seen that three years ago, Office as total percentage of annual revenue was over 50 percent," she said. "It's now down to 36 to 37 percent. So what do they say? 'People aren't buying as often, so we're going to charge them more.' "

But DiDio emphasized that not all the blame for the difficult licensing transition can be placed on Microsoft. Companies haven't properly audited the software they have or figured out what they think they should be paying.

"This is a high-stakes poker game," she warned. "Pay attention. At the end of the day, you're the one's that'll have to negotiate with Microsoft. You have to come to the table armed with knowledge and from a position of strength."

 

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