Microsoft licensing changes to hit on October 1st

Analyst GartnerGroup is warning businesses worldwide that they have just one week in which to plan for Microsoft's imminent software licensing changes.

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By  Robin Duff Published  September 24, 2001

According to a recent report by GartnerGroup, businesses worldwide interested in upgrading to the latest in Microsoft software products have very little time in which to do so without incurring prohibitive licensing costs.

Changes in the way companies can license products from Microsoft will go into effect on October the 1st, on which date version upgrades, product upgrades, competitive upgrades and language upgrades will no longer be available. Products such as Office and Windows XP could cost larger companies between up to 33 per cent and 107 per cent as a result of the changes.

“I can confirm that the licensing changes will affect users in this region,” commented Layth Dajani of AMS International, speaking on behalf of Microsoft Gulf and Eastern Mediterranean (GEM). “Costs will vary depending on the needs of specific corporate users, but changes will definitely kick in, like the rest of the world, on October 1st.”

Reports emanating early from the United States suggest that some customers are paying over 100 per cent more for the software they buy in volume from Microsoft, and that they are, unsurprisingly, less than happy. Microsoft’s huge share of the operating system market, almost 90 per cent in the US, has also been behind customer frustration, in that the company is relatively free to charge what it wants, which they would be unable to do in a more competitive market.

“I think customers have a choice,” said Bill Landefeld, vice president of worldwide licensing and pricing. “They had a choice before, and they have the choice going forward.”

The choice appears to mean “upgrade or else” and, unfortunately, pay a huge amount more if you want to continue using the latest Microsoft packages. Alternative systems will probably not be the most realistic option either, even if they will cost less, as many companies currently rely heavily on Microsoft systems. The alternatives are there: Linux and Sun’s StarOffice, but migrating to either would be a massive headache for most companies.

“Certainly, however, Microsoft runs the risk at the server level of giving some advantage to people like Oracle and IBM,” said Gartner analyst Neil MacDonald. “It’s really too soon for Microsoft to feel secure on the server side. They have good market share, but I wouldn’t say they’re dominant.”

The biggest losers will probably be the larger companies that buy their software from Microsoft in large volumes. The reason for this is because the main way that they currently buy the pakages has been eliminated by Microsoft.

Under terms ending on September 30th , most businesses could purchase upgrades through a two year maintenance contract called “Upgrade Advantage” or by buying one of four common version upgrades, which is the most common choice. Both options will be replaced with a new option called “Software Assurance.”

The following is an excerpt from Gartner’s advice to businesses that they should “act before October 1st to save money.”

"Enterprises requiring UA should terminate their Open Authorization or Select Agreements and enter into new v.5 agreements before 30 September 2001 to position themselves to buy UA with the longest future upgrade coverage period. For enterprises wishing to maintain upgrade protection, failure to do so will result in a significant cost penalty. Although nominally a two-year offering, UA actually runs concurrently with the Select or Open contract term. Enterprises with agreements signed in 2000, may purchase UA up to February 2002, but they will pay for two years and get coverage for only seven months (i.e., the remainder of the contract term). In addition, they will then have to sign a Select v.6 agreement earlier than they could have and enroll the licenses into Software Assurance. To get an extra year of Software Assurance, these enterprises will pay 29 percent of the license fee per year for desktop applications and 25 percent for server products. For example, for Microsoft Office Standard at current Select "B" estimated retail pricing ($349), an enterprise with 5,000 desktops would pay a fee of more $500,000. It could save that cost by simply terminating their contracts and re-entering new v.5 agreements before 30 September."

"Enterprises whose Select v.4 or v.5 contracts expire between 1 October 2001 and 28 February 2002 run the risk that they could not repurchase UA at all. Even though Microsoft has extended the deadline for buying UA until 28 February 2002, enterprises can purchase UA only under a Select or Open v.5 or earlier agreement. Since Microsoft's new v.6 Open and Select licensing programs become available on 1 October 2001, it is questionable whether Microsoft would allow enterprises to facilitate UA purchases by renewing v.5 or older agreements past that date. When these enterprises next wanted to upgrade, they would likely have to repurchase the license to get the most current version, and then buy Software Assurance to stay current (at 25 percent to 29 percent of the license fee annually). Thus, Select level "B" customers would pay a relicense cost of $349 for each copy of Microsoft Office Standard plus a maintenance cost of $101.21 annually."

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