Microsoft moves to subscription-based
upgrades in ‘Software Assurance’ plan
In an apparent effort to beef up stagnant revenues in its software licensing division, Microsoft has made changes to its licensing program that will affect businesses using software on multiple machines.
Microsoft’s desktop applications division has reported just under $7 billion in revenue in the last three quarters. That figure has not increased from the same period a year ago.
Desktop licenses account for 37% of Microsoft’s business. So lack of upgrade business means a significant portion of the business has not grown.
Existing volume licenses allowed for inexpensive updates to new versions of popular software including the Windows operating system, Microsoft’s office suite and other packages.
But Microsoft’s three-volume licensing plans are now being eliminated and replaced by a new system, which according to River Run Computers Vice President Paul Riedl will be more expensive for licensees. River Run is a Glendale-based information system consulting firm specializing in installation and maintenance of Novell and Windows NT networks and Citrix Metaframes.
Riedl said that, up until Oct. 1 of this year, Microsoft will continue its current volume licensing system, which includes:
Those various programs will be replaced by the Software Assurance program, a subscription service that allows users access to any upgrades that take place within the timeframe of the subscription agreement. While the Software Assurance program starts officially Oct. 31, a grace period has been extended to licensees allowing them to buy into Software Assurance upgrade coverage any time before Jan. 31.
The recurring costs after the initial term of the agreement for the Software Assurance program will be 29% of the full license price for desktop software and 25% of the full license price for server client access licenses. Software Assurance coverage for Microsoft Office Professional, which retails for about $600, would cost $174.
For firms that use Microsoft applications on fewer than 500 computers, the switch will mostly mean more out-of-pocket expenditures, according to Riedl.
“The big thing that it will mean is more dollars,” Riedl said, adding that it will be in businesses’ interest to evaluate what products they want upgrade coverage on, and on what products to allow coverage to lapse.
“My take on it is that you have to look at the three different areas in your business — operating systems, applications and network operating systems like Microsoft NT,” Riedl said. “In my estimation, you need to look at your processes. Look at the operating system — the industry standard is that everyone should have the same operating system. But it is not always necessary to do that. Do you really need to upgrade all your operating systems?”
The use of each machine and its expected lifecycle should help determine whether a business should opt into Software Assurance for each operating system license.
“If you will be replacing those work stations, why worry about upgrading the operating system?” Riedl said. “Your new work station will generally have the new operating system on it, anyway. And consider the actual benefits of upgrading the operating system. Chances are, the version of Windows you are using now does everything you need it to. The features added at a later date may not affect the way you use your machine, but might consume more hard-drive space and RAM.”
Riedl added that businesses should be less concerned with the operating systems than specific applications. Different versions of the same operating system can still run newer versions of applications, Riedl said, which would allow coworkers to share files seamlessly.
“Applications — this is a big one because there are so many of them,” Riedl said. “You will need to ask yourself where you want to be. Do you need to be with the latest and greatest? You have to have a good plan in place for your software changes and updates. Do you want to stay current with your applications? Do you have other non-Microsoft applications that tie into Microsoft products — like ACCESS? If I am pulling reports in my ACCESS database — if I upgrade my non-Microsoft product, will that affect ability to run my reports?”
Riedl said that, apart from propping up static revenues, Microsoft has another goal in mind in switching to this licensing agreement.
“I think that Microsoft will get people enrolled in Software Assurance, and that will increase revenue quickly right off the bat,” Riedl said. “There is the fear factor. Upgrade costs are based on product cost, and people don’t know what the product pricing strategy will be. From Microsoft’s standpoint, they are also trying to get the world used to subscription-type purchasing of software.”
And a subscription approach will prepare people mentally for an Application Service Provider (ASP) delivery system for software, Riedl said.
“The big factor is that if you think about all the ASPs — it is almost like Microsoft is trying to get us into that mode and then move us into an ASP scenario,” Riedl said. “You log into Microsoft’s servers in Redmond and run Word and Excel over the powerful pipelines they have. I really feel they are trying to get us into the subscription mode to that end.”
While Riedl does think the subscription approach and higher cost will get people to think critically about the need to upgrade specific software, he does not think the Software Assurance plan will steer people away from Microsoft applications.
“I have thought about that — but I really don’t think so,” he said. “Microsoft will not suffer — just because there isn’t a lot people can choose from at this point. Will more competition develop as a result? I don’t know.”
After all, part of Microsoft’s leadership position is due to market forces beyond end-user choice, according to Riedl.
“If you are a developer of some type of application and need to integrate with a word processing package, whose program will you plan on supporting?” Riedl asked. “You will have your programers make sure you can work with the biggest right away. Only as a secondary priority will you support the next biggest player.”
What to do?
Riedl encourages businesses to take a calm, measured approach to the licensing change. Times of change like this are excellent times to undertake an audit of software being used in a company, Riedl said, adding that it is usually not necessary to hire a consultant to undertake this project.
Riedl suggests information technology managers follow a few simple steps
1. Stop for a minute. Remember Y2K? Everybody was up in arms about it. But look what actually happened. Take a look at the situation in a logical fashion — and figure out what software you have.
2. Next, figure out what software you are actually using. You may have a number of Microsoft packages that are not being used — and it would not make sense to purchase upgrade subscriptions for them.
3. Figure out what you need to use in the foreseeable future and how many people in the company will be using that package.
4. Determine your company policy. Do you want to stay cutting-edge? Do your Microsoft products interact with other packages that are critical to your business?
Aug. 17, 2001 Small Business Times, Milwaukee