Microsoft users accept their fate

With one week to go before Microsoft's controversial new licensing programme kicks in, the IT user community has largely accepted...

With one week to go before Microsoft's controversial new licensing programme kicks in, the IT user community has largely accepted its fate and swallowed the extra cost it expects the pricing changes to bring.

However, IT user bodies have warned the software giant not to expect a repeat of the massive revenue increases it saw in the three months to June, because companies will seriously consider alternatives before they upgrade again.

On 1 August, volume licensing deals that allow Microsoft customers to upgrade software on a trade-in basis will disappear. If companies want to upgrade to newer versions of Microsoft software after this date they will have to pay the full amount - up to 45% more, according to Gartner estimates.

After a backlash from users, supported by an award-winning Computer Weekly campaign, Microsoft delayed the implementation of the new pricing structure twice. However, the 31 July deadline is final, insisted Sue Page, Microsoft's UK licensing manager. "The 31 July deadline is rock solid," she said. "Microsoft will not make a last-ditch change."

Last week Microsoft announced an increase in sales of 10% for the three months to June and net profits of $1.5bn (£900m), up from $65m in the same period last year.
News of the company's bumper profits angered some heavyweight UK user groups, which accused Microsoft of using its new Software Assurance enterprise licensing regime to boost profits at the expense of users.
David Roberts, chief executive of the Infrastructure Forum, which represents IT directors from FTSE 500 companies, said, "Microsoft's dramatic increase in revenue despite the world economic climate is clear evidence of the success of its programme to force users to pay more overall for their licences, despite previous protestations to the contrary."

Scott Boggs, Microsoft's corporate controller, said the new bulk licensing program has helped drive sales of Windows and Office XP. "We saw many corporate customers take advantage of our annuity licensing programs," he said.

But despite widespread user discontent, no one has made a complaint to the Office of Fair Trading (OFT). David Rippon, chairman of BCS IT directors group Elite, said, "No one has gone to the OFT so it appears that companies have accepted the situation. Companies must have made their minds up by now - they were warned about it a year ago."

However, many small businesses have left negotiations to the last minute or are considering alternatives, said Peter Scargill, IT chairman of the Federation of Small Businesses.

Christopher Young, managing director of the Impact Programme, a personal development network for IT executives, echoed this point. "Microsoft has destroyed a lot of trust and goodwill. This will make companies look elsewhere," he said.

Stuart Mitchenall, a member of the Society of Information Technology Management working party which has been studying the affects of the changes on the public sector, said last week that about 10% of councils have not made a decision yet. "The implications of the licensing changes will still hit them next time they come round to playing catch-up," he said. "My advice is to take a decision and not sit on the fence."

Meanwhile, users can expect further software licence price rises in the coming months as other suppliers follow Microsoft's lead, analysts warned this week.

While the likes of Oracle and IBM have offered once-a-year-upgrade licences for some time, software suppliers such as Citrix and Adobe may look to the subscription model to boost revenues, said Jon Mein, research director at Gartner. "The likes of Citrix and Adobe may want to follow Microsoft's lead in order to receive regular payments from their customers," he said.

Sun Microsystems, whose Staroffice productivity suite has been touted as an alternative to Microsoft Office, may also follow Microsoft's lead, according to Mike Thompson, senior research analyst at Butler Group. "It likes to be seen as bringing in the bucks," said Thompson, who believes that Sun is under pressure from shareholders to increase revenue and that adopting a licensing model similar to that of Microsoft could offer a potential solution.

Microsoft customers should also expect further changes in the way they buy software from the Redmond giant, Mein said. "The next big change from Microsoft will be to include product support within the cost of the licence in the way that Oracle and IBM already do," he explained. "This could have further cost implications."

Although in the past Microsoft has has denied it will scrap perpetual licences, Gartner expects them to disappear by 2006. This could lead to higher costs for some companies in the long run.

Microsoft's licensing changes could mean more large companies will start looking at using the Linux operating system, although many small and medium-sized companies (SMEs) cannot afford to go down the open source route yet. "The associated costs of making that change for SMEs are too great," said Thompson. "I am afraid that, for now, they will just have to bite the bullet and buy a licence."

Nevertheless, Thompson believes SMEs should not permanently rule out Linux. "In three years that situation may have changed drastically," he said.

The Microsoft licensing issue at a glance
The new programme
  • On 1 August, volume licensing deals that allow Microsoft users to upgrade software on a trade-in basis will disappear. If a company wants to upgrade to newer versions of Microsoft software after this date it will have to pay the full amount - up to 45% more, according to Gartner estimates.
User reaction
  • Many companies have signed up to the new licensing programme to avoid initial increases in costs, but are seriously considering alternatives for the future
  • Some small businesses and public sector organisations have left the decision to the last minute - some Microsoft resellers expect do to business right up until midnight on 31 July.
Repercussions
  • Analysts have warned that other software suppliers may follow Microsoft's lead in a bid to boost revenues. The Redmond giant achieved record profits for the three months to June as companies scrambled to purchase licenses
  • Expect more licensing changes from Microsoft. Analysts predict that it will include product support within the cost of a licence and will scrap perpetual licences within four years.


Additional reporting by Karl Cushing and CW360.com

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