Software Assurance means revenue assurance

Either Microsoft has a shaky financial forecasting system or chief executive Steve Ballmer thinks he can bluff and get away with it.

Either Microsoft has a shaky financial forecasting system or chief executive Steve Ballmer thinks he can bluff and get away with it.

A simple database search reminds us of what he said in June about the likely effect on sales of the company’s Software Assurance licensing scheme.

He told a trio of Computerworld US journalists that he expected to see sales dip during the transition to Software Assurance, which came into effect at the end of July. And what actually happened? Sales leapt -- while profit more than doubled -- on the same quarter a year ago, precisely the effect anticipated by those suspicious that the subscription licensing model was intended to boost Microsoft revenue. Knowing that Microsoft is a user of SAP’s well regarded financial software, the inescapable conclusion is that Ballmer was having the US journalists on. He’s well known as being a bit of a performer for the press, but in this business it’s helpful to know when your leg is being pulled.

It makes you wonder what he really meant when he told a press conference in Sydney 10 days ago that there would be no discounts for big customers contemplating Linux.

Was he nearer the truth when he added that he’d have to sit down and study the commercial terms with a customer confronting that choice? (An especially advantageous price, perhaps -- not a discount, mind -- to keep your valued custom?)

The simple truth is that no one really believed Microsoft had invented a new licensing structure with any other aim than to make more money. The just-released financial result showing the first-quarter revenue jump also shows that unearned revenue -- what the company expects to make in the future from software subscriptions -- is up from about $US6 billion a year ago to more than $US9 billion. Microsoft finance head John Connors says it shows customers recognised the value of entering into long-term licence arrangements.

That might be true if the company was giving cast-iron guarantees of software upgrades within the three-year term of Software Assurance, an oft-heard criticism in the lead-up to the scheme’s introduction. But already there are signs that Microsoft won’t manage to get the next version of Windows, Longhorn, out on time. Showing prevarication skills the match of Ballmer’s, Windows group manager Rogers Weed has so far failed to give a clear answer on the Longhorn release question. Would there be an interim Windows release if Longhorn wasn’t ready within three years of XP? We’re not planning one, Weed said a month ago. Would the company do something if Longhorn slips? Yes, said Weed. Are you reassured? You shouldn’t be. Weed wouldn’t speculate on what that something might be.

Microsoft customers Computerworld speaks to can readily recite a list of areas where the company could be providing improved value to match the revenue gains from Software Assurance. For instance, server OS stability. An IT manager within one of the country’s universities says it runs Linux in preference to Microsoft software for the bulk of its applications, and those apps running on Windows NT are plagued by instability. A development team head at a very large local ISP says it runs Sun products because Microsoft doesn’t cut it at the top end. And the IT manager at a mid-size Auckland exporting company says he argued against signing up for Software Assurance because he couldn’t see the value in the $14,000 bill -- but was overruled by his bosses.

And we haven’t even started on to the subject of security. Since Microsoft declared in January that security was going to be given higher priority than adding features to its software, security flaws continue to crop up at the same rate as ever. By Microsoft’s own count, there had been 57 alerts in the first nine months of the year, leaving analysts wondering whether the company will fulfill the promise of trustworthy computing anytime soon.

One says to really deal with the issue the company needs to transform itself along the lines of its mid-90s shift from being a desktop- to an internet-focused business. He also urges customers -- of Microsoft and other vendors -- to hold their suppliers liable for security failings.

Customers might also start demanding evidence of the added value the company talks about providing.

Doesburg is Computerworld’s editor. Phone him with editorial suggestions on 09 302 8763. Send letters for publication to Computerworld Letters.

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