Infrequent upgraders face MS licence price hike

Software licensing specialists approve of proposed changes to Microsoft's licensing regime, and say that overall it will benefit New Zealand users.

Software licensing specialists approve of proposed changes to Microsoft’s licensing regime, and say that overall it will benefit New Zealand users.

From October 1, Microsoft will eliminate version upgrades, instead pushing a variety of perpetual licensing agreements known as “software assurance”, which critics say are intended to lock users into running the latest software versions.

Software assurance is a three-year programme that will allow customers with more than 250 PCs to pay a subscription for products such as Windows Professional and Server, Office, the .Net Enterprise servers and other enterprise products. Customers will be able to upgrade to the latest version of products released during the term of their agreement at no extra cost.

Software assurance replaces the range of upgrade licences currently available to enterprise customers including “version upgrade”, “product upgrade”, “competitive upgrade” and “upgrade advantage”. Most local sites fall into the version upgrade and upgrade advantage categories.

Since the changes were announced last month, negative reaction has been reported in Europe, Australia and the US. US customers are bemoaning the fact they may have to carry out massive audits and Australian users appear confused.

A group of Dutch systems administrators complained to Microsoft about what it feels is an unreasonable increase in cost. The Netwerk Gebruikersgroep Nederland (NGN), which comprises 3700 IT professionals, says Microsoft software costs under the new policies would increase for 86% of its members. It claims Microsoft is abandoning the principle that a corporate user has the right to a discounted upgrade. If NGN members want Office XP at a reasonable price they need to upgrade before October 1 this year. If they don’t, the price for using Office XP over a four-year period will be 100% to 232% higher, says NGN chairman Vincent Everts.

Vicky McCullough, of software licensing consultancy Accordo Group, says NGN members do have options. They could buy upgrade advantage which, for about the same price as a version upgrade, covers any new version released in a two-year period. She says the figure of 100% to 232% must have been calculated by comparing a single version upgrade to a new licence, which is simplistic.

McCullough sees the NGN action as an emotional reaction rather than a considered one. “The claim that 86% of their organisations will pay more would seem to be based on some questionable arithmetic. It also seems to be based on a simple projection of current buying patterns with new pricing schemes applied.”

She draws an analogy with the introduction of GST in Australia, which she says for most companies works out to be cost-neutral. “However, the emotional wave was huge.”

McCullough says even in the US, large companies with existing enterprise agreements or upgrade advantage are likely to be better off under the new scheme. “The complaints are likely to come mainly from companies without a significant current investment in Microsoft technologies and that are used to moving forward with cheap version upgrades on a very occasional basis.”

McCullough says in contrast to organisations that upgrade infrequently, those that have bought enterprise licences or upgrade advantage on most of their products will find the new scheme attractive. This is particularly relevant in New Zealand as the penetration here of upgrade advantage is one of the highest on a per capita basis in the world.

She says it could be argued that the current system contains injustices. “For example, a copy of Office 4.2 counted equally with Office 97 as a basis for an upgrade to Office 2000. Who would expect a 1995 Toyota with 100,000km on the clock to get equal trade-in value to the 2000 model which has run only 20,000km?”

According to Microsoft New Zealand marketing manager Ross Peat, most local customers upgrade every three years or more.

One such organisation is Waitemata Health Board, which tries to keep as up-to-date as possible with its software. It is currently rolling out Windows 2000.

Health board IT infrastructure manager Alistair Neave says his first impression of the changes is that it will not affect his organisation because its desktop software is covered by Enterprise Agreements. “The area where it will have more impact is on the server side. The issue is making sure we’re covered by a current upgrade advantage, which I think we are.” Neave says he will be attending a seminar on the topic in the next few weeks in order to learn more.

McCullough says perhaps the most difficult aspect will be the timing of the required spending, rather than the extent of it. “Some will work out a way to reduce costs in the long term but may face an unbudgeted cost in the short term. For example, an organisation that was planning to upgrade to Office XP early next year will now not be able to do so by purchasing a version upgrade — because they won’t exist after October 1. However, for roughly the same price they can buy upgrade advantage, earn Office XP and possibly one further upgrade within a two-year window. The catch is that they must buy upgrade advantage before October 1 — in other words, bring their purchase forward into the current financial year. If they don’t do this they are faced with a full licence cost to move to Office XP next year — at about twice the cost of a version upgrade.”

McCullough says Microsoft’s aim appears to be to convert organisations to the software assurance subscription model, which assures the company annual revenue streams. She says in time it will simplify the licensing structure, although for the next two years there will be a confusing hybrid period. “Software assurance is also a step towards the real goal, of subscription licensing in a world where software is a service rather than a discreet package.”

Gen-i is one of Microsoft’s 11 large account resellers in New Zealand, accounting for 12% of local Microsoft licensing revenue. Gen-i software services manager Simone Gould says 60% of its clients have enterprise-wide software licensing agreements under which they make annual payments.

She says with the forthcoming changes, clients will no longer have to re-buy licences when they expire but can re-sign for maintenance only, thus reducing costs and protecting what they have invested in licensing so far.

The remaining 40% of gen-i’s customers have traditionally bought under a version upgrade strategy in which they buy an upgrade as they need it. Gould says these clients have often struggled to gain board approval for enterprise agreements with annual options, but the new model should make it easier as it will allow them to budget more accurately.

“This is done by taking the new [software assurance] licence cost and applying the relevant fixed percentages across the next three years. In conjunction with looking at price increases over the past five years, which average around 7% per annum, there is real value in locking your pricing in for a three-year term.”

Peat says feedback from large customers is they need more time to think it through. “These licensing agreements run over multiple years and people need a little bit of time to digest.”

He says New Zealand does have a high uptake of enterprise agreements. “In general New Zealand businesses tend to be smaller than those overseas and more fleet of foot in seeing the advantage of these agreements. I think in New Zealand the changes will be less of a challenge than it is for Microsoft in other countries.”

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