Decision time for Microsoft users

With the deadline for Microsoft's controversial new licensing strategy less than two months away, many IT directors face a tough...

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


  • New offerings: No change


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
  • New offerings: No change


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

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