New Microsoft licences -- short-term gain, long-term pain

Microsoft has launched a subscription-based licensing model that will offer users short-term benefits but longer lifetime costs.

Microsoft has launched a subscription-based licensing model that will offer users short-term benefits but longer lifetime costs.

The Enterprise Agreement, announced this week, will allow organisations with five or more user licences to buy their software on a yearly subscription basis.

In the past Microsoft's common corporate user licence involved a perpetual use agreement, where users paid an annual fee for three-years. At the end of that time they had the choice of renewing the licence and upgrading the software or carrying on using the existing software at no extra charge.

Under Microsoft's new Software Assurance contract, the company guarantees to upgrade software but users do not have the right to continue using software once the agreement expires. This means users will be able to upgrade more frequently but they will ultimately pay more in licensing fees.

"The non-perpetual offering is cost-effective in the short term through attractive pricing models," said Duncan Reid, Microsoft's Product Services Group manager. However, he admitted that over a period of five years the perpetual licence user would be better off.

The software giant emphasises that the new subscription model will simplify the upgrade process and it is providing customers with more flexibility. Reid also points out that customers do not have to change to this model. It is simply an option.

Microsoft said the new licence regime would not be available until October, but Microsoft has been offering its enterprise customers in Europe the subscription model for some time. According to Reid, 1,000 such customers have already signed up. The company expects about 50% of enterprise users -- 40% of its overall customer base -- will sign up for the new model.

Microsoft claims the new licences will make little difference to its revenue stream. "We've looked at this [revenue impact] and believe that in the short term this is financially immaterial to Microsoft. In the longer term it will depend on the customer," said Reid.

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