Microsoft licensing is under question again

This year could be a testing time for Microsoft's Licensing 6.0 scheme as questions are raised by analysts and users over the value it has delivered since its launch in 2002.

Many large customers will decide whether or not to renew their Software Assurance (SA) contracts with the Seattle supplier over the next two years.

And if research from analyst Gartner proves to be accurate, Microsoft will lose desktop market share to other client operating systems such as Linux, as customers look elsewhere for additional value.

Gartner is predicting that 50 per cent of Microsoft's Select and Open customers will not renew their existing SA agreements and 30 per cent of Enterprise Agreement customers will shun renewals before the end of 2005, 'because of a perceived lack of value.'

Gartner research director Jon Mein says the addition of new features to the licensing scheme last year was Microsoft's attempt to increase the value of the contract in recognition of the problem.

'Microsoft is encouraging customers to buy upgrade routes to products that won't ship for two or three years,' he said. 'Where is the value proposition for customers?'

Gartner claims Microsoft has 'alienated' its customers and they will carefully question whether the contracts provide any real value.

An absence of new products will drive a reluctance to renew, and force customers to rethink their upgrade priorities.

Microsoft's next scheduled Windows version, codenamed Longhorn, has not been given a release date but is not expected until at least 2006.

'The things we have seen in the subtle changes to the roadmap and product lifecycles seem to suggest that the upgrades that organisations thought they had a right to expect in the life of their agreements have been moved across the boundary and won't be available until after the current agreements have expired,' said David Roberts, chief executive of blue chip user organisation The Corporate IT Forum (Tif).

Mein says it is likely the software giant will release an interim, slimmed-down version of Longhorn before the full product ships, to keep users happy.

But Mark Buckley, licensing marketing manager for Microsoft UK, says he 'knows of no Windows that will be anything less than Longhorn.'

Buckley says early indications suggest a high renewal rate under Software Assurance, but he points out that product upgrades are not the be-all and end-all.

'What we are saying here is that the upgrade is essentially part of the programme, but it's not the only part of the programme. We are encouraging customers to come and talk to us and discuss their licensing programmes, and how they can get the most out of their licensing contract,' said Buckley.

But some customers are unconvinced.

Birmingham City Council is the largest local authority in the country, employing 50,000 staff with 15,000 desktop systems.

While all its PCS run Windows, the council has not signed a Software Assurance agreement with Microsoft because it was unable to establish what value it would deliver.

'Microsoft approached us saying would we like to change the way we procure their products and enter into an agreement whereby we pay a fee based on our estate and we do that annually, or in chunks of the contract, at which we were rather vexed,' said Tahir Chaudry, IT contracts manager at Birmingham City Council.

'We thought - hang on, we have bought the products. What they wanted us to do was re-purchase these on the supposition that if we upgraded our machines we wouldn't have to pay for the upgrades,' he said.

'For us to actually accept new software and roll it out onto the machines is a very costly exercise and we simply don't have the money,' he said.

Chaudry believes that other large organisations will realise that Software Assurance isn't delivering any value and will increasingly turn away from such arrangements.

Tif's Roberts concurs with this view.

'Microsoft ought to be moving their product upgrades further out because organisations have been complaining how expensive they are to implement,' he said.

But the issue of software licensing and upgrade is not specific to Microsoft, says Philip Virgo, secretary of Parliamentary lobby group Eurim.

'I don't think this is going to impact only on Microsoft,' he said. 'It's going to impact on the whole market. A great deal of business is moving from regular upgrades to straightforward maintenance. Customers don't want the upgrades.'

Virgo says this shift reflects the 'overall maturity' of the market, and there must be a direct business benefit attached to all new agreements.

'You are going to see this across the board,' he says.

Gartner believes that as contracts come up for renewal, businesses will be much better placed to negotiate better deals providing more value.