* What will R2 do to Microsoft's bottom line?
Last time out, I mentioned my that one of the 2005 predictions in my Network World column (see link below) was that Microsoft would hammer heavily on licensing to even out its revenue stream since it does not have an operating system due out this year.
There are still some – even some inside Microsoft – who claim that “Longhorn,” the next version of Windows for the desktop (the successor to XP) will ship before this year ends. I don’t think so, believing that spring 2006 is more likely. Of course, the next server operating system isn’t due until late 2006/early 2007 – or even later. So there’s no new operating system due out this year. Microsoft counts on revenue from operating system sales and upgrades (along with sales and upgrades to Microsoft Office) for the bulk of its revenue.
There is one platform upgrade due out this year, R2, the “rollup” of service packs and bug fixes (with some new stuff) for Windows 2003 Server. The “new stuff” is updated server modules so that 2003 Server will be able to support the new features in Longhorn when it comes out. But will R2 also mean additional revenue?
So far, we don’t know.
Windows 2003 Server R2 will replace the current retail boxed product (and the pre-installed product) when it becomes available so that purchasers after that time will have the latest version. 2003 Server customers who have Software Assurance will get R2 for no charge. For the others, Microsoft says they can purchase the server license to get the ‘R2’ functionality (see (https://www.microsoft.com/windowsserver2003/evaluation/overview/roadmap.mspx#EEAA).
Does that mean you’ll have to pay the same as those who don’t have 2003 Server? Most assuredly not. There’ll be an upgrade price, but it’s yet to be determined. But that “upgrade” price is the only positive revenue Microsoft will gain from this release. The boxed and pre-installed product will sell at the same price as the original Server, so any cost increase due to R2 is eaten by Microsoft. Those on Software Assurance pay nothing, so all of the cost of fulfillment is eaten by Microsoft. It’s to be expected that most of those acquiring R2 this year will come from one of those two groups – not from those paying an upgrade price for it. That means that R2 looks to be a net revenue loser. That’s not what Redmond likes to hear.
So expect big pushes on Software Assurance and other “subscription-like” programs so that Microsoft can better control its year-to-year cash flow – and keep it on the positive side.
