A year ago, no bookie in his right mind would have given odds on that. But in 2003, the bet that Microsoft will give in on licensing terms or price or both has made the leap from no-hoper to reasonable long shot. And that’s good enough for many CIOs, low on resources and unimpressed by Microsoft’s latest offering, to take that wager.

Microsoft’s Big Squeeze

Microsoft’s new plan isn’t unusual. Big ERP and CRM vendors make their customers pay a yearly subscription fee?typically 10 percent to 22 percent of the license price?when they buy the software. For that, they get free upgrades and support. But Microsoft’s take is higher?29 percent of the license price per year, according to Gartner. Indeed, cost is a big factor in CIOs’ anger. Even if you signed up for Licensing 6.0 before the deadline, chances are you’re paying more than you did before. The fare hike depends on how often you like to upgrade your computers, according to Gartner. If you’re accustomed to dumping things every three years, you pay at least 50 percent more; four years and it’s 100 percent more for desktop and server software. Microsoft’s calculations say that 20 percent of customers will pay more, 50 percent will see no change and 30 percent will actually pay less under the new plan.

No matter whose numbers you believe, it’s clear that the new plan favors companies that upgrade more often. But in these economic times, CIOs are less likely than ever to upgrade. Especially since analysts and CIOs alike call XP at best an incremental improvement over Windows 2000. And most corporate customers haven’t even gotten that far yet. Most are just now considering upgrades from Windows 95 (which Microsoft stopped supporting in 2001) and Windows 98 (support ends in June 2003), says Gartner. There’s a pattern emerging here that CIOs don’t like: Microsoft’s upgrades have become more frequent and more incremental over the years, just like the other major enterprise software vendors.

Kathy Tamer, vice president and CIO of United Space Alliance, the Houston-based prime contractor for the space shuttle program, has a timetable for upgrading her company’s 10,000 desktop computers that doesn’t match Microsoft’s. "We upgrade the desktop every three to four years and the operating system every four to five," she says. "That gives us time to get everything stabilized and gives us the best return for our investment."

Tamer is in the process of upgrading to Windows 2000 from Windows 95 and 98. She purchased all the licenses before the new plan came along and is rolling out the new stuff as she buys new machines, turning over about 25 percent of the machines per year. She is a fan of Windows products in general, she says, but saw no reason to sign up for the subscription plan simply to hedge her costs on a future upgrade. "With our timetable, it made no sense to go with the new plan," she says. "The price to us was going to be $3 million, and we had four months to pay [before the deadline]. We told Microsoft to go pound sand."