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Microsoft licensing deadline looms

Analysis Partly to blame for IT doldrums?
Tue Jul 16 2002, 10:01
IN TWO WEEKS Microsoft will slam the door shut on customers used to its former pay-as-you-go software sales policies. As of August 1st, IT organisations that haven't knuckled under to Microsoft's Licensing 6.0 initiative will be facing significantly higher costs, if and when they do finally upgrade their servers, desktops, and office software.

We've read that all recalcitrant customers' subsequent licensing cost penalties might be up to 45% -- but we'll get back to that shortly.

The dark rabbit-hole leading one down into the Great Vole's veritable Alice-in-Wonderland maze-like warren of various and quite bewildering Volish software licensing terms and conditions may be found here.

Customers who "upgrade" to the Licensing 6.0 scheme also lose ownership of Microsoft software products and are thereby nudged into limited term licensing with periodic extensions (with or without any code updates), as shall be dictated by Microsoft -- in other words, software leases.

Microsoft has also instituted something they have rather quaintly termed Software Assurance, which involves 25% to 29% annual license surcharges -- though we don't know if this is merely for access to report bugs or for some, er... assurance that Microsoft will offer help or actually fix bugs. In any case, it's what big-iron vendors such as IBM and Computer Associates term "maintenance fees." Incidentally, most all enterprise software maintenance fees typically run 15% to 20% of one-time software product licensing costs, depending upon the product.

Microsoft is not only imposing software leasing, but they are also charging much more for maintenance than other software vendors. Gotchas, coming and going.

In a previous life, this correspondent was well indoctrinated that the term "assurance" means only "inspiring confidence" legally, in that the locution is a favorite of consulting firms that don't want to "ensure" or -- heaven forfend -- "insure" anything regarding actual results.

Prospects for Microsoft's new licensing regime were polled last March and reported by the INQUIRER based upon a rather broad survey that had been conducted by Sunbelt Software .

Since three months have passed and Microsoft's deadline is almost upon us, we thought it might be interesting to revisit that study, make some extrapolations, and speculate about Microsoft's licensing sea-change, both for them and for the IT industry as a whole. Although we don't have any more recent polling results available and have misplaced our crystal ball, we doubt that IT organisations will have reformed overall in the meantime, so perhaps we can guess some hints from the record.

The study at hand begins its statistics with a very telling breakdown -- of all respondents, only 12% had budgets to afford Microsoft's licenses, while 41% definitely couldn't afford them, and the remaining 47% didn't know at the time. Now, let's suppose that similar proportions propagate into Microsoft's deadline. That will yield another 5% of the total that can afford the new licensing and -- assuming "don't know" means "no" -- the rest, or another 42% of the total, that can't afford to switch.

If this analysis is moderately accurate, about 66% to 80% of Microsoft's customer base can't afford Microsoft's imposed Licensing 6.0 program.

A little spreadsheet magic reveals that Microsoft doesn't care about its customers with less than 20,000 seats, as they comprise less than 25% of its customer base, approximately, the majority being big firms with more than 50,000 seats. Not coincidentally perhaps, these are the companies that are most risk-averse as well as best able to pony up for licenses.

So... this is really Microsoft's assault on its largest IT customers.

But what does this all mean? Well... for one thing, as the study hints, it suggests that smaller Microsoft business customers, excluding people who buy PCs individually -- most of whom have no choice but Microsoft -- might look elsewhere. Most will simply put off spending any more money right away and hope to muddle through with what they have until later.

Given the near-50% price premium Microsoft will enforce, one might have a guess that almost 25% of Microsoft's customer seats will wait another six months to a year-and-a-half before upgrading, to level the cost.

What's perhaps also interesting is that smaller, more nimble firms will be first movers away from Microsoft's arrogant and oppressive software licensing protocols, and these companies will gain cost advantages that place their larger competitors, who pay the new Microsoft taxes, at the disadvantages that will accrue to their higher internal IT expenses.

What about the IT industry? Hmmm... I don't know about your situation, but if I were a CIO facing 20% to 200% higher software costs (about 85% of study respondents reported Microsoft software cost increases in this wide range), and I thought I had to pay this, well... I'd freeze hiring and research projects and cut back on hardware buys. Sound familiar?

Thus, there is a case to be made that Microsoft is a fiscal drag on all IT industry, both at present and for several quarters yet to come. µ

Category Avg#seats Survey% Population #Seats
<500 100 0.55 1500 82500
<1000 750 0.13 1500 146250
<3000 2000 0.12 1500 360000
<5000 4000 0.06 1500 360000
<10000 7500 0.05 1500 562500
<20000 15000 0.02 1500 450000
<50000 35000 0.03 1500 1575000
<5000 75000 0.04 1500 4500000
Total 8036250

Sunbelt Software March 2002 Microsoft Licensing Survey by #Seats


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