Microsoft license changes anger IT managers

Microsoft gave customers a temporary reprieve earlier this summer when it postponed some of the controversial volume license changes that had been scheduled to take effect October 1.

But even with deadlines extended to the end of February, some IT managers are still having a tough time stomaching the changes announced in May, particularly since new licenses or product upgrades may cost them more money.

Several of the 20 IT managers polled by Computerworld this month said they haven't decided what to do and feel pressured to make decisions at a time when they're dealing with more pressing priorities and leaner budgets.

"I'm upset that Microsoft's trying to squeeze more money out of us and that it's taking a lot of time and my energy and my peers' energy to understand all of this," said Jeffrey Ratner, assistant vice president of distributed engineering at Phoenix Home Life Mutual Insurance Co.

"I was disappointed in the program itself and how it was proposed," said Jon Ricker, president and CEO of Limited Technology Services, the IT arm of The Limited and Intimate Brands. "There was not enough advanced communication."

Ricker said that IBM, another large technology partner, typically contacts his company a year in advance of making major pricing or licensing changes "so we have time to adjust our budget."

"I think Microsoft continues to struggle with this whole enterprise thing," said Ricker, who oversees more than 30,000 PCs.

Bill Landefeld, vice president of worldwide licensing and pricing at Microsoft, said the company is "getting a lot of very positive feedback" and "some mixed feedback" as it works to educate customers and partners about the often complicated changes.

Landefeld said his company launched the changes to simplify licensing, ease software administration, streamline its sales process and provide customers with more flexibility and choice, including a new subscription option.

Analysts and users, in contrast, have viewed the move as a less-than-subtle attempt to induce customers to upgrade more often and provide Microsoft with a more steady and predictable cash stream as revenue growth wanes.

But many corporate users have bristled at the volume license and upgrade changes, and their uneasiness could have consequences for Microsoft. Several IT managers warned that they may upgrade less often or consider looking more seriously at competitors' products rather than pony up for potentially costly licenses or upgrades.

"If Microsoft continues to make my choices narrower and life tougher for me, they'll see exactly how little monopoly they really do have over this market, and we'll exercise our choices to go somewhere else," said Jim Prevo, CIO at Green Mountain Coffee Inc. in Waterbury, Vt. Prevo added that he had never even thought about considering alternatives until he was confronted with Microsoft's licensing changes.

Rob Enderle, an analyst at Cambridge, Mass.-based Giga Information Group Inc., said one of his firm's clients, a US$2 billion insurance company, is yanking everything but Microsoft's desktop products in response to the changes. Enderle said that among the clients who have contacted Giga, about 30 percent are "really upset," and only one is happy.

That happy customer is an investment house that will see its costs go down as a result of discounts available to Enterprise Agreement holders. "This is a company who chases technology," Enderle noted. "They always install the more current stuff."

An Enterprise Agreement entitles a customer to a standard set of Microsoft products on all of the PCs licensed through it, as well as access to any upgrades released during the contract's three-year term. Such agreements typically have found favor with large companies that use many Microsoft software products and don't want the hassle of managing their licenses.

Enterprise Agreement holders, in general, aren't bellyaching, since Microsoft imposed few changes on that top customer group. To entice more customers to consider the more costly Enterprise Agreement option, Microsoft even lowered the qualification threshold from 500 licenses to 250, effective Oct. 1.

But many midsize and even some large companies continue to hold the next level of license: the Select Agreement. That group is raising the most complaints.

That's not surprising, since Select Agreement holders are seeing some of their least-expensive upgrade options, including the popular version-upgrade program, eliminated as of Oct. 1 in favor of a Software Assurance plan, which Landefeld said would give users a more predictable way to license software and administer upgrades.

Under the Software Assurance program, users must pay on an annual basis 25 percent of the license fee for any server product and 29 percent of a desktop product's price for the right to upgrade to the latest available version of the software. To qualify, a company must be using the current version of the software -- a provision that isn't sitting well with some IT managers.

"Honestly, you're looking at paying the money every year for Software Assurance, and to me, that's like they're dictating to you when to upgrade," said Jamie Ratliff, a technology administrator for the city of Victoria, Texas, which has a population of 62,000. "We don't upgrade that fast. We're on a four-year cycle to upgrade."

Ratliff is encouraging aggrieved parties to support a group he has founded called Microsoft Users Against Software Assurance. As of Aug. 16, 59 people had signed a petition at since its Aug. 4 launch.

One of the ways that users can pave the way for a move to Software Assurance is to buy into the Upgrade Advantage (UA) program. UA gives users access to all upgrades within the time frame of their contracts. The UA option had been scheduled for elimination Oct. 1, but in response to customer requests, Microsoft extended the option until Feb. 28.

Landefeld said he doesn't anticipate further changes. "If you keep tweaking a program like this, it gets very complicated very quickly to keep up on what the latest changes are."

Many users are evaluating their Enterprise Agreement and Software Assurance options. But for others, the prospect of upgrading frequently enough to make those options cost-effective isn't appealing. Some said they plan to buy any new software licenses they need when they upgrade to new PC hardware.

Steve Quiett, an information systems architect at Barney & Barney LLC, an insurance broker in San Diego, said Software Assurance would make his costs soar by $300 per PC. With 175 PCs, that's $52,500.

"What I get for that is not to have to go through the activation wizard for Office," Quiett said. "I report to the CFO, who looks at me and says, 'What are you, nuts?' " Quiett said he will buy new PCs every three to four years and relicense any software he needs rather than go for the Software Assurance option.

With 340 desktops and laptops, Prevo has an additional option -- an Enterprise Agreement. Despite the administrative pain the second option would bring, Prevo said, he's leaning toward perpetual licenses because it results in the smallest cash outlay over the next two years and allows him to save money if he chooses to delay upgrades.

"I actually like to just buy my PCs with Office preloaded and just retire the PC and Office after three or four years. That would be ideal," Prevo said. He added, "In my opinion, Microsoft has one fundamental problem: There is no ROI for an organization to upgrade the Office suite. Period."

"The reality is that few, if any, of our users use more than a fraction of the available features in the existing [Office] suite," agreed Tim Ritchie, vice president of logistics and CIO at CE Franklin Ltd. Ritchie added that there's "no real business case" in favor of frequent upgrades in the Windows operating system either.

But not moving to either the Enterprise Agreements or the Upgrade Advantage program carries risks. Users will have to buy brand-new licenses at some point, and that can be a heavy one-time expense.

"I'd put [the risk] in the 20 percent range that it will become prohibitively expensive to use full-package pricing," said Chris Le Tocq, an analyst at Guernsey Research in Los Altos, Calif. "Microsoft has been found to be a monopoly and does not want to be accused of monopoly pricing activities, so there is a cap on how far Microsoft can raise those prices."

For some users, it's a risk that's worth taking. For others, it's putting off the inevitable.

"They have a monopoly on desktops. Accept it. You must comply," said Steve Sommer, CIO at New York-based law firm Hughes Hubbard & Reed, noting that the company's 800 PC users need the latest software to serve its clients. "We have to bite the bullet."

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