| Shaking the Corporate Tree -
Microsoft Licensing
The new plan, called Licensing 6, will effectively raise the licensing fees from 33% to 107% according to market researcher Gartner. Microsoft are gambling on their monopoly position to force companies to acquiesce to the rise. Analysts noted that in a competitive market it is very unlikely that Microsoft would have been able to force this size of rise on its customers. The crucial part of Licensing 6 is the bit relating to upgrades. Called 'Software Assurance' it requires businesses to pay 29% of the full price annually in return for which they get to upgrade to new software versions during the contract period. The problem is that few businesses upgrade every year - indeed Microsoft doesn't even guarantee to bring out a new version every year! So people who used to upgrade every 3-4 years (the normal company upgrade cycle) are facing an absolutely massive increase in costs. Large companies who have purchased the new license have seen their IT budgets devastated, and are having to defer much needed hardware upgrades and the production of new software. Since the program has been in effect for some time now (the deadline for signing up was extended twice because of customer resistance) it's possible to see the financial effects for Microsoft by looking at the accounts. Unearned Revenue, most of which is from software licensing agreements, rose $2bn US during fiscal year 2002, compared with the previous year. And this is with only a third of its customers so far signed up to the program. One can only speculate on the effect of leeching this sort of money out of the hi-tech segment of an already staggering US economy. A survey by Sunbelt Software based on a sample of 4,500 technology managers suggests that about two thirds of them simply aren't going to sign up for it. Microsoft itself will not give figures for take up - all it will say is that it met its internal targets. But even on the non-take up two thirds Microsoft stands to win in the long run, as long as they stay with Microsoft products since they will have to buy upgrades at full price. The crucial part is if they stay, and Microsoft is banking on having got most of them too locked in to be able to break out. So what are the implications for the future? Well I suspect that Microsoft made a serious mistake in extending the deadline for signing up, since the delay allowed Sun to bring its Star Office 6.0 to market. I know Corel is still pushing the somewhat long in the tooth Word Perfect Office, but for reasons of history, I don't think Word Perfect poses much of a threat. Microsoft's customers seem to me to fall into three categories. The first are locked in, usually by management inertia, and will pay whatever it takes to stay a 100% Microsoft shop. Microsoft is banking on most of its customers falling into this category. The second category are those who are gritting their teeth and paying up - this time - but using the time between now and when they have to next pay up to find something more cost effective. Finally there are those who have refused to pay up and are already testing alternatives. A recent InternetWeek survey found that 38% of corporates are actively seeking alternatives to Microsoft's products. Microsoft's obvious problem is that there are now viable alternatives, and they run under Windows. Star Office 6.0 from Sun is the chief contender, and is currently getting very good reviews for its reliability and usability. It also has the advantage of using an open standard - XML - for its storage format. Additionally it's not effectively confined to one platform, it runs on Windows, Linux and Solaris and would probably not be that difficult to port to the Unix-based Mac OSX. Furthermore, the difference in cost between Star Office and Microsoft Office is close to an order of magnitude, more than enough to cover the cost of deploying the new software and training employees to use it. But, to my mind, Microsoft's new 'Software Assurance' program has major pitfalls in it for Microsoft itself. Microsoft has a long history of slipped shipping dates - frequently by more than a year. What happens if the shipping date slips into the next year? The customer is not going to be happy to have got nothing for the 29% of the cost price they paid that year. This is not abstract - the .NET server product has just had its shipping put back a year. What this will mean, I suspect is that Microsoft will be forced to ship upgraded products on time. Why is this a disaster? Because it means they will be forced to ship products before they are, even by Microsoft's standards, ready. And what is the first thing to go when you ship a product before it is ready? Testing! So in the medium to long term the net result is increasingly buggier Microsoft products. I shudder to think of the shambles and the mounting level of patches involved. Whatever happens, I suspect 1 August 2002 will come to be seen to be a make or break date for the future of Microsoft.
Afterword: 27 October 2002 |
If you have any questions or comments about the articles on my web site, click here to send me email. |