Microsoft desktop licensing driving customers away

In an informal poll conducted by InfoWorld last week, 42 percent of respondents said that even though they currently use Microsoft Corp. servers they are planning to switch to non-Windows software on the server side because of discontent with the company's controversial licensing plan for desktop products.

The prospect of IT shops gravitating away from Microsoft's servers, at a time when the company is expected to deliver its critical next generation of Windows .Net servers early next year, could open up opportunities for competitors such as IBM Corp., Sun Microsystems Inc., BEA Systems Inc., and the ever-changing collection of Linux vendors.

As of Friday mid-day, some 42.6 percent of 1,081 respondents said they were likely to switch, with 52.1 percent saying they still plan to use Microsoft's server software. Another 4.7 percent said they might switch but were only considering other options, and 0.7 percent said they were not sure what they would do.

The Redmond, Wash.-based software behemoth's Licensing 6.0 plan is scheduled to take effect July 31.

It has been almost a year since Microsoft first introduced its Licensing 6.0 plan, which includes the controversial program called Software Assurance. That option would require users to make a contractual commitment to buying volume upgrades for its best-selling operating systems and desktop application suites ahead of time and paying an annual fee, instead of upgrading when they wanted or needed to.

"I don't like the restrictive nature of the [Software Assurance] plan, but it wouldn't make me throw out some huge investments I have in their servers either. However, let's just say I might be more open to considering some other [server] alternatives if they came along. The plan is just one more thing in the negative column on that decision," said Barry Hewitt, a LAN administrator with a large regional medical equipment distributor in Chicago.

Users who do not sign up for Software Assurance could see their upgrade costs rise anywhere from 30 to slightly more than 100 percent, according to research conducted last year by Gartner, a consultancy based in Stamford, Conn.

Last fall market research firm IDC conducted a poll among IT decision makers asking them if the terms and conditions of Licensing 6.0 would make them consider moving from either their desktop or server platforms, and 14 percent said they would. When the other "still evaluating" or "don't know yet" categories were added in, however, the number rose to a little more than 60 percent.

"This plan has not generally been accepted yet, although Microsoft presents it as a better deal for most people. But when you ask Microsoft to define 'most people' it translates to their largest customers," said Dan Kuznetzky, vice president of IDC's systems software research group, in Framingham, Mass.

Another observer, however, said he did not think Microsoft's server software business would be severely damaged because a good number of their existing users are among the most loyal customers the company has. Secondly, because Microsoft does not hold a monopolistic position in the server market, most of those users have purchased those systems without any licensing pressures.

"Most of those [Microsoft server users] have bought those systems voluntarily as opposed to a situation where they have to have Office because everyone else does," said one analyst who requested not to be identified.

Microsoft officials last month admitted they had not given customers enough time to make decisions about signing up for the licensing program and have done a "lousy" job of clearly explaining all the ins and outs of the new programs. They said they would step up their efforts over the next month or so to clear up any confusion. Microsoft also made it clear, however, that they do not intend to significantly revamp any of the programs terms.

Microsoft is in the midst of a $10 million education program intended to help customers make the right licensing decisions that best fit their needs, a company spokesman said.

Kusnetzky countered by saying that although it is important for Microsoft to better explain the program to customers, it is even more important that they listen to their major issues and not simply tell them more about how the plan works.

"Microsoft needs to listen to what people's concerns are and not try to explain them away. At this point the impression Microsoft has left with a lot of people is they are not listening to anyone but their biggest customers and even then, not all of them. They are doing what is in Microsoft's best interest and not in any one else's best interest. That makes people feel like this company is pushing them around," Kusnetsky said.

Adding some competitive pressure to the situation was the introduction last month by Sun of its StarOffice 6.0 suite that is priced significantly lower than Office XP and has improved file compatibility with the Microsoft suite. Sun is also in the process of developing an open-source version of Star office, called OpenOffice, that analysts have said could apply additional pressure, particularly in the Linux environment.

(InfoWorld is a sister publication to Computerworld.)