Microsoft overhauls software-licensing program

Scott Hillis

SEATTLE: Microsoft Corp. on Thursday overhauled its software licensing model

to businesses by offering a subscription option that will eventually pave the

way for selling its software as a service. The software giant, which makes the

Windows Operating System and Office suite of business applications, said

starting in October the changes will simplify a complex system that frustrated

some customers and sometimes delayed sales.

Business customers will be able to spread costs over many separate payments

rather than fork over annual upfront fees, and get support and upgrades bundled

in, as well. "We're seeing a lot of general market shift, such as towards

software as a service, and our licensing hasn't kept up with all of that,"

said director of program development in Microsoft's licensing division, Kim

Carnesale. "This is definitely a first step towards the whole software as a

service model," Carnesale said in an interview.

Some analysts have said the changes were aimed at squeezing more revenue out

of existing customers. Traditionally, Microsoft has counted on the rapidly

growing PC market to bring in new license revenue, but as PC sales slow, it is

trying to tap its existing customer base for more revenue.

Carnesale said the changes themselves wouldn't put more money in Microsoft's

pocket but might attract more customers, by making it easier to deal with

Microsoft. "It's designed to be financially neutral. But to the extent that

we can do a good job (implementing this) we hope we will see an increase in the

number of customers wanting to take advantage of it," he said.

The subscription model is still a far cry from Microsoft's stated goal of

turning its software into Web-based products that can be accessed on any

Internet-ready machine, Rob Enderle, an analyst with technology consultancy Giga

Information Group. "The semi-subscription model I'm still not convinced

goes far enough. It needs to target the user instead of the hardware. This is a

small step in the right direction," Enderle said.

Better keep upgrading



The changes will not affect 60 per cent of Microsoft consumers who are home
users or who buy software from retail outlets, Carnesale said. The other 40 per

cent are largely businesses that need to outfit and support dozens or even

thousands of computers.

Some analysts had expected Microsoft to end or sharply curtail so-called

perpetual use rights that grant ownership of software to customers after the

license expires. Perpetual use will still be available, but users who don't

upgrade every couple of years will end up paying higher costs.

"It requires corporate customers to look pretty closely at these

options," said Dwight Davis, an analyst with Summit Strategies. The biggest

change comes in the way customers can upgrade their software. Microsoft is

replacing five different upgrade plans with a single offering called Software

Assurance.

Microsoft said half of its business customers would see no change to costs

while 30 per cent would see costs fall. Those are customers who upgrade every

two to three years. "The new program provides an incentive for those folks

that like to upgrade fairly aggressively," Enderle said.

The remaining 20 per cent - largely small businesses who might upgrade only

once every four years or more - would see their costs rise. That might alienate

some customers, Enderle said.

"So many people look at Microsoft like a taxing entity today, and that's

going to be the tendency here and is something Microsoft has to overcome,"

Enderle said. Starting Oct. 1, customers can choose to keep their existing

licenses or swap them for the new ones. Microsoft is also streamlining the way

contracts are drawn up and signed, letting customers go through a single

salesperson to sign a single contract covering licensing and support, Carnesale

said.

(C) Reuters Limited 2001.