Microsoft slashes Windows XP custom support prices just days before axing public patches

Reduces after-retirement support costs for large enterprises as much as 95%

Just days before Microsoft retired Windows XP from public support, the company drastically reduced the price of custom support agreements that give large companies and government agencies another year of XP patches, experts reported today.

"I believe that Microsoft changed prices because it decided that not enough customers were enrolling in the program, and it was apprehensive of the ramifications of any Windows XP vulnerabilities," said Daryl Ullman, co-founder and managing director of the Emerset Consulting Group, a firm that specializes in helping companies negotiate software licensing deals.

At Ullman's recommendation, one Emerset client had spurned a $2 million deal two weeks ago to provide 10,000 XP PCs with custom support. But Microsoft came back days later with an price of just $250,000. Ullman advised his client to jump at what he called "an insurance policy," and the firm signed on the dotted line.

Others told Computerworld of similar deals Microsoft offered at the last minute to get customers to commit to another year of patches.

Custom support agreements, or CSAs, provide critical security updates for an operating system that's been officially retired, as Windows XP was April 8. CSAs are negotiated on a company-by-company basis and also require that an organization have adopted a top-tier support plan, dubbed Premier Support, offered by Microsoft.

The CSA failsafe lets companies pay for security patches beyond the normal support lifespan while they finish their migrations to Windows 7.

Windows XP's retirement was major news last week, and not only in the technology press, because the nearly-13-year-old OS still powers almost 28% of the world's personal computers. With the patch spigot turned off, many security experts, including Microsoft's, believe that cyber criminals will have a field day hacking XP PCs.

Although Microsoft has been beating the dump-XP drum for years, it has had mixed results getting everyone off the aged operating system. Most attribute a combination of budgetary issues, the stability and familiarity of XP, the poor reception of Windows 8, and sheer inertia as the cause for Windows XP's stubbornness.

The turn-about on CSAs was a marked change from late 2012 and early 2013, when Microsoft significantly boosted prices by reinstituting a $200 per-device model and setting top-end caps of as much as $5 million.

Michael Silver, an analyst with Gartner, had tracked those price increases last year. Today, he said several Gartner clients had reported massive price breaks in the last two weeks. "Microsoft made it much more affordable, but still priced to encourage companies to migrate," he said.

The new ceiling is $250,000, according to several sources, although the $200-per-device price remained in place.

Like Ullman, Silver attributed Microsoft's discounting to a fear of the backlash that would result if a large customer's PCs were infected with malware after the patch halt. "[A CSA] provides a modicum of protection to organizations and to Microsoft, which likely seeks to avoid public criticism for any Windows XP security breaches," Silver wrote in a note to clients April 8, the same day Microsoft retired the OS.

Sources familiar with Microsoft's position claimed that the company changed its CSA pricing tune after chief operating officer Kevin Turner returned to Redmond at the beginning of the month from a swing through the sales force, where he got an earful about customers with thousands of XP machines and no chance of making the migration deadline. The decision to drop prices was made shortly after that.

Ullman and Silver corroborated the timeline, saying they began hearing about the price reductions around the first of the month.

Microsoft's decision was the right one, said Ullman.

"This was an enormous change," Ullman said. "It shows a change at the way they look at their customers and might be part of a fresh atmosphere at Microsoft. I don't think it was about a change of heart about pricing, but instead Microsoft being a responsible software provider, stepping up to be responsible, realizing that there were all kinds of reasons why companies haven't upgraded XP, and providing a solution for a product that's there, that's reliable."

Microsoft has made several other moves of late -- all after Satya Nadella was appointed CEO to replace Steve Ballmer -- that signal a different attitude than, say, even three years ago, including shipping a touch-first Office for the iPad before one was ready for Windows 8.1.

"[The earlier CSA pricing] was a bad call," Ullman continued. "But someone said, 'This is wrong and we need to step up and be reasonable.' I see this as Microsoft helping customers migrate at their own pace."

Silver was less impressed. "What people wanted was longer support for Windows XP," he said in an interview. "But there was no way that Microsoft was going to blink on that. There was no way they were going to change the [support retirement] date. So the only thing they could do was lower the price. That way they wouldn't anger too many existing customers who had spent the time and money migrating from XP."

Still, Silver also noted that the winds had shifted in Redmond. "They wouldn't have moved this fast earlier," he said.

Because Microsoft adjusted the cap, not the $200 per-device pricing, the lower prices will benefit larger organizations. Ullman said that the new CSA minimums were 750 PCs, with a minimum payment of $150,000 for a year's worth of support.

Gartner advised companies that had already signed a CSA to go back to Microsoft and ask for a review and renegotiation of their current contract pricing and terms.

Under Microsoft's rules, companies can sign a CSA at any time -- there is no deadline, something Ullman said was very unusual for Microsoft -- and have immediate access to all the critical security updates that have been released since April 8. Payment for the first year of fixes, however, is retroactive, meaning that if two organizations sign a CSA, one today, another in December, the span covered will be from April 8, 2014, to April 8, 2015, for both.

The general public cannot obtain the same critical XP security updates which will be provided to the large companies and other organizations that negotiate a CSA with Microsoft.

Instead, Microsoft has encouraged consumers and very small businesses still running Windows XP to upgrade their hardware to Windows 8.1 or purchase new PCs with that OS, an appeal that has been characterized by some as deaf to reality.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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This story, "Microsoft slashes Windows XP custom support prices just days before axing public patches" was originally published by Computerworld .

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