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Network World - A host of Microsoft users say they have received nothing in return for the tens of thousands of dollars spent on software maintenance contracts set to expire this summer.
The issue, which is coming to light as Microsoft delays various product shipment dates, could explode and might cost Microsoft billions of dollars, observers say. Hundreds of thousands of customers are thinking twice about renewing software maintenance contracts that will expire by July.
With the renewals so critical to Microsoft's balance sheet and its battle with open source alternatives, end users might have the best negotiating opportunity they will ever see, the experts say.
Scott Matthews, CTO for Digitech Systems in Greenwood Village, Colo., says he hopes that is true.
In June 2002 he spent $30,000 on a software maintenance contract for SQL Server under Microsoft's new annuity licensing program called Software Assurance. The program was introduced two years ago to reduce Microsoft's tangle of software maintenance offerings to a single plan.
When Matthews signed the contract, a new version of SQL Server code-named Yukon was slated for release in 2003, but the ship date slipped into early 2004 and then to the end of this year, which is beyond the expiration date of his contract.
"We were specifically planning to upgrade to Yukon, which we had been expecting for ages," Matthews says. "It leaves a bad taste in your mouth. As the CTO, it puts me in a bad position to go into the CFO and tell him we got nothing for this and this and this."
With his contract expiring in June, Matthews says he also got nothing for the tens of thousands of dollars he spent on Windows XP, but added he saw value in Software Assurance contracts on Windows and Office with the shipment of Windows Server 2003 and Office 2003.
Microsoft and every other major vendor do not guarantee software upgrades as part of their maintenance contracts. But users view upgrades as the meat of their contracts.
Matthews says Software Assurance was marketed from the start as the way to guarantee rights to new software. Howls of customer protest greeted the 2001 introduction of Software Assurance and Microsoft's new Licensing 6.0 program. In addition to fears of higher licensing costs, critics said one of Software Assurance's pitfalls could be Microsoft failing to deliver new software during a contract.
"We didn't buy [Software Assurance] just for that reason," says Jason Givens, senior systems analyst for Southwestern Energy in Houston. "We don't upgrade on a fast cycle, and by the time our [Software Assurance] expired we would have been in the same boat [as Digitech]." He says phone, Web and other support services subsequently added to Software Assurance are of no value to him.
Microsoft, however, says those offerings are significant to Software Assurance, which has been revamped over the past two years to offset customer complaints about its value and cost.
Microsoft's software maintenance costs are the highest in the industry, at 29% of the full retail price for desktop software and 25% for server software. A $368 Office license would carry nearly a $107 fee for Software Assurance.
The industry average is 21%, according to Forrester Research.
"We learned a lot since launch, and we are trying to take that feedback and act on it," says Sunny Charlebois, product manager in Microsoft's worldwide licensing and product group. She disputes that Digitech received nothing for its $30,000, saying Microsoft shipped Notification and Reporting services for SQL Server as well as SQL Server CE, which were available to Software Assurance customers. But Digitech does not use that technology.
In September, Microsoft added training, support and software tools, and home-use rights for Office to the Software Assurance menu, but did not cut the price, noting that Software Assurance was now more "than just upgrade protection."