With the deadline for Microsoft's controversial new licensing
strategy less than two months away, many IT directors face a tough
task choosing the right option for their business. Making the wrong
decision could prove costly. James Rogers explains.
Just over a year ago Microsoft announced it would change the way
almost every business in the UK buys Microsoft software, prompting
outrage from IT directors concerned about a sharp rise in costs.
Following pressure from an alliance of IT director groups and an
award-winning campaign from Computer Weekly, Microsoft postponed
the implementation of the new software licensing terms initially to
February this year, then to August.
But with the 31 July cut-off deadline just weeks away, many
businesses still fear a steep rise in software costs.
"We have real evidence which supposes that the [cost] increase will
be no less than 90% on average," said David Roberts, chief
executives of The Infrastructure Forum, a group of IT leaders who
represent nearly half of the FTSE 100 companies.
Microsoft is abolishing the software upgrade and maintenance
options under its traditional volume licensing agreements, and
replacing them with a scheme called Software Assurance.
Organisations buying Software Assurance will be entitled to
software maintenance that guarantees their right to new versions of
the software for the enrolment period of up to three years.
The annual cost of Software Assurance is 25% of the price of a full
licence for server products and 29% of the price for a full licence
for desktop products.
Old upgrade discounts, which applied to any version of Microsoft
products and could be taken up at any point in their usage, are
being replaced. The likes of Competitive Upgrade, for example,
which enabled users to upgrade from a competing product to an
equivalent Microsoft product at a discount, has already expired.
Instead, until 31 July, users with the previous version of
Microsoft software also have the option of choosing Upgrade
Advantage. This perpetual licence enables them to upgrade to a new
version of a product and then to any newer versions launched before
or during the period covered by the deal, which lasts two years.
Microsoft executives say the cost of Upgrade Advantage will be
between 60%- 65% of the cost of a full application or server
licence.
Microsoft's new UK licensing manager Sue Page said, "Upgrade
Advantage will get users up to the current version of their
software. For example, Office 97 users who use Upgrade Advantage
will be entitled to use Windows XP and receive ongoing coverage."
The other option is Software Assurance itself, which is available
to those using the latest version of Microsoft software. Unlike
Upgrade Advantage, it will be available after 31 July although
users will also have to purchase a full licence as well.
Page said, "After 31 July an organisation will no longer have the
opportunity to upgrade, they will have to buy a full licence or a
full licence with Software Assurance."
Despite Microsoft claims to the contrary, the options in front of
businesses are not straightforward. In terms of using software,
companies can opt for Upgrade Advantage, Software Assurance or
continue with the software they have in the knowledge that they
will pay the full price for new software.
However, within the Software Assurance deal there is the option of
renting software. A subscription licence can entitle a business to
use the latest version of Microsoft products for three years. But
the business will not own the products once the agreement has
expired and may face a difficult choice over whether to migrate to
rival software, buy new Microsoft products or continue subscribing.
In addition, companies are individually negotiating Enterprise
Agreements with Microsoft that incorporate a mixture of the new
licensing terms.
Microsoft suggests that users contact their resellers if they are
unsure about how the licensing terms will affect them. Page said,
"Go and talk to your reseller and ask them to look at your specific
situation."
Microsoft has also set up a hotline to provide users with
information on the new licensing regime.
Although Microsoft licensing terms may be difficult to understand,
the stakes are high and failing to chose the right option could be
costly to your business.
"The historic [licensing] system looks more attractive now, it was
more flexible and cheaper," said Roberts.
Tif has undertaken research highlighting the cost increase caused
by the removal of discounts offered under Microsoft's original
software upgrade options.
Microsoft, however, argues that this will not be the case for all
businesses. "We have never denied that there won't be some people
that are negatively impacted [by the new licensing arrangement].
But we think that for the majority it will be neutral or positive,"
said Page.
Industry watchers are concerned that Microsoft is attempting to
control the pace of software upgrades, and companies that want to
upgrade over longer periods will be penalised under the new scheme.
This is because businesses that upgrade Microsoft products less
often than every three years may not gain from signing the limited
period Software Assurance or subscription deals and may have to pay
the full price of software every time they buy new products.
Roberts said, "Large organisations are not very keen on frequent
upgrade cycles because of the cost of implementing the upgrade and
the delay in receiving any payback.
"It is very difficult to get significant budget allocated in IT and
it is important to demonstrate the cost benefits to the business
quickly," he added.
That was what caused the original furore about the new licensing
strategy, Roberts said.
Microsoft, which has invested £1m to make its users aware of the
new licensing changes, is adamant about one thing: the deadline for
the new strategy will not be moved for a second time. Page said,
"The 31 July deadline is rock solid. Microsoft won't make a
last-ditch change."
It seems that the decision about which option to go for is now
firmly in the hands of the users, whether they like it or not.
How to choose the right option
When deciding the
appropriate course of action, you should consider these
issues:
1. Frequency of Upgrades
Are you likely to upgrade from
your current Microsoft software to a newer version during the next
three years?
2. Preferred Payment
The decision here is whether to
pay for your software all at once every few years or to pay for it
in annual instalments.
3. Future Plans
Will your organisation grow due to new
lines of business, mergers or joint ventures or will it downsize?
How will software asset management be tracked?
Microsoft's volume licensing terms
Upgrade Advantage
Under this perpetual licensing scheme users have the right to
upgrade to the latest version of a product, for example Microsoft
Office, and any new versions of the software. This option is only
available until 31 July. Microsoft executives say that the cost of
Upgrade Advantage will be between 60%-65% of the cost of a full
application or server licence. Deals last two years.
Software Assurance
This option is available to people
using the latest version of the software and can only be purchased
separately until 31 July. After that date users will also have to
buy a full licence in addition to Software Assurance. The annual
cost of Software Assurance is 25% of the price of a full licence
for server products and 29% of the price for a full licence for
desktop products. Subscription deals last up to three years.
Changes to volume licensing schemes
The final
transition to version 6.0 of Microsoft's volume licensing scheme
will take place on 1 August.
Open Licence 5.0
- Previous offerings: Perpetual licence aimed at smaller
organisations, minimum five licences. Deal lasts two years, with
option to renew for two years. Discount of at least 22% off retail
prices, rising to 28% discount depending on the volume of licences
bought
Select Licence 5.0- Previous offerings: Perpetual licence aimed at
medium-sized and large organisations, minimum 250 desktops. Deal
lasts two years, with option to renew for two years. Volume pricing
discount for applications, systems and server software, size of
discount depends on forecast volume of licences bought in each
category
- New offerings: Deal lasts three years, with option to
renew for one or three years
Open Subscription Licence- Previous offerings: Aimed at small and medium-sized
organisations with a minimum of 10 desktop PCs. This is a
non-perpetual, enterprise-wide licensing option that allows users
to rent software for an annual fee about 15% lower than the annual
cost of a standard Open agreement
Open Subscription Licence
Enterprise Agreement 5.0- Previous offerings: Aimed at large organisations,
minimum 500 desktops. Deal lasts three years, with option to renew
for three years. Volume discounts depend on number of qualified
desktops in the enterprise
Enterprise Agreement 6.0
- New offerings: Minimum number of desktops reduced to
250. Deal lasts three years, with option to renew for one or three
years. New subscription option allows customers to rent software
for an annual fee 15% lower than the annual cost of a standard
Enterprise Agreement.
The Microsoft hotline number is 0870-6010100