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.