Software licensing woes still dog Microsoft

Five years after Microsoft sparked a firestorm with new volume licensing and upgrade programs, customers are still struggling with a system many say is delivering less than promised.

Five years after Microsoft sparked a firestorm with new volume licensing and upgrade programs, customers are still struggling with the system many say is delivering less than promised.

The programs have not adequately addressed the complexities of licensing, stemmed cost increases or provided a simplified upgrade path, customers say. Microsoft continues to tweak the program last week when it rolled out another handful of features for its Software Assurance (SA) maintenance and upgrade program.

The company has made things even more complicated by introducing a dizzying array of licensing combinations and options for Office 2007 and Windows Vista products. Some of those offerings are available only to volume licensing customers and some don’t come with published price quotes. In some, products and feature sets are available only to SA customers.

“Overall, licensing for everything in the Microsoft world is not getting any easier,” says George Defenbaugh, manager of global IT infrastructure projects for petroleum company Amerada Hess in New York. “With SA, the gamble now is on a product-by-product basis, and you have to be cognizant of product life cycles, release dates and upgrades to new versions.”

Absent that, he says, users open themselves up to making major financial mistakes that can run into millions of dollars.

“I am the guy who is cursed with the responsibility of becoming an expert on Microsoft licensing,” he says.

Amerada Hess has found carrying SA on its client access licenses (CAL) provides flexibility in upgrading software, but SA for servers is purchased only if the product’s next version is imminent.

Defenbaugh says SA’s complexity is born out of more product choices, rollout scenarios and timing issues, all factors that have not let him realize SA’s promises of reduced licensing costs.

In 2001, Microsoft said 80% of customers would see costs decrease or remain unchanged with SA, a claim users disputed with such an unprecedented uproar that the program’s start was delayed nearly a year.

By 2004 only 40% of customers said their costs had decreased or were unchanged, according to The Yankee Group. By 2005, that figure rose to 62%.

Laura DiDio, the Yankee analyst who conducted the surveys, says the 2005 jump is part of the evidence Microsoft has made a 180-degree turn from where it was four years ago when CEO Steve Ballmer admitted the licensing program was complex, created economic hardships and was in need of additional benefits.

“Microsoft is becoming more proactive and customer-centric,” DiDio says. She says Microsoft has crafted SA to help users from inception and planning all the way through to transition and migration. “That is all good stuff. They have turned a boondoggle into a boon.”

Since 2003 Microsoft has added nearly 20 benefits to SA, including training vouchers, deployment guidelines, home-use rights, disaster recovery options and technical support. Last week, Microsoft expanded SA’s training voucher program, added deployment planning services, workshops, 24/7 phone support and conversion of SA support to Premier Support for customers with those contracts.

“Customers tell us they want more from our SA maintenance offering, which is why we are adding additional benefits,” says Sunny Jensen Charlebois, product manager for worldwide licensing and pricing at Microsoft

But many customers say those benefits provide little value to them.

“You have to appreciate the fact they have ramped up, but most of this stuff we have never touched,” says Scott Matthews, CTO of Digitech Systems, a software developer in Greenwood Village, Colo. “We want two things: upgrades and quality phone-based technical support.”

Amerada Hess’ Defenbaugh echoes those sentiments and says he has had no use for SA benefits until last week’s link of SA and Premier Support, which could help trim some costs.

“SA is an upgrade program. I am paying for upgrades,” he says.

When SA was first introduced it was billed as an upgrade program, but Microsoft later deemphasized upgrades, saying they were not guaranteed as part of SA, which is purchased per product. The programs that SA replaced, including an enterprise favorite called Upgrade Advantage, were solely designed for that purpose, however.

Product delays forced Microsoft to de-emphasize upgrade rights, including a two-year slip in the shipment of SQL Server 2005 that left a bitter taste in the mouths of SA subscribers whose contracts ran out before the product was delivered.

Those missteps are contributors to slow adoption of SA, a fact that is borne out in Microsoft’s financial statements, where unearned revenue, a major indicator of SA adoption, initially showed major declines quarter after quarter shortly after SA was introduced.

“Those quarter-over-quarter declines show customers were not signing up for SA,” says Paul DeGroot, an analyst with Directions on Microsoft. Microsoft doesn’t reveal the percentage of customers who opt for SA, but he says the rate is in the 20% to 30% range for customers with Open and Select volume licensing contracts. Those customers purchase SA as an add-on instead of getting it included in their deals, as is the case with Enterprise and Open Value contracts.

“I don’t know many people that would keep a program going that only had a 30% renewal rate,” DeGroot says. “So I would have to give them a bad grade on SA.”

Customers and analysts also are taking note of SA changes that link specific products and features to SA enrollment and a new Enterprise CAL, which can be incrementally upgraded to support services such as rights management and security.

For example, the Enterprise version of Windows Vista, which includes a highly touted security feature called BitLocker Drive Encryption and virtualization technology, will be available only to customers with SA contracts. Interim releases of existing products such as Windows Server 2003, are available for free to SA customers but require all others to buy a full license.

“I consider SA to be seriously flawed and I would say it has a number of fatal flaws,” DeGroot says. He says those include Microsoft not committing to upgrades as part of SA, reserving some products only for SA customers and restricting purchases of SA to new product licenses. He says loosening those requirements could foster enrollment and a spike in unearned revenue.

“The fact is that SA is still a bet and remains a problematic purchase choice going forward,” he says.