Is software a product or a service?

BANGALORE: Microsoft, after having successfully built a dominating market for

itself, is now planning to tighten the noose around its large customer base. The

Redmond-based giant had last year hinted that it would move to a periodic

licensing model from the existing ‘life-time’ licensing for its enterprise

customers.

In layman terms this means, large business houses will have to cough up

licensing fee every three years for the Microsoft products use. Though, the

modalities of the implementation of the new model is not yet clear, the move

will have far reaching consequences for the software industry.

Besides ensuring a more regular inflow of revenues, Microsoft’s latest move

is aimed at serving dual purpose. One, the new licensing model is a step towards

preparation for the implementation of Microsoft’s ambitious DotNet model.

Second, the firm also hopes to encourage enterprises to upgrade their software

through the new model, an issue that has long been of concern for Microsoft.

With the adoption of XML as the basic connecting language in the DotNet model

and its plans to introduce the ‘shared source’ system to counter the Open

Source school of thought, Microsoft now hopes enterprises will find its products

talking across all platforms and architectures. The firm, it seems, feels it

would have a better control over the usage of its products through the periodic

licensing model.

But with faster releases of upgrades to existing versions, the demand for the

same has been steadily dwindling. This has been a worrying factor for the firm,

which has seen only about 40 per cent of its Office customers, upgrade to the

latest version. Through the periodic licensing model, Microsoft is expected to

throw some carrot to its customers who opt for upgrades.

However, it will be interesting to witness how enterprises would react to the

new model when it is introduced in the market. It was Microsoft that first made

IBM accept software as a product and pay for it. Now, Gates want us all to

accept the software and pay repeatedly for the same ‘service’. If it

succeeds there would be not stopping to it. Dell or a Samsung, may next declare,

that the hardware they manufacture are their intellectual properties and

consequently, a licensing fee will have to be paid every three years by the

customers for use of the same product!

However, if the model fails, Microsoft will be forced to return to the

existing practice. And then, chances are that it would find a part of its turf

being occupied by others. Gates seems all prepared for his next big fight.