SOFTWARE LICENSING - Microsoft's New Subscription Plan: CIOs Just Say NO!

On May 10, 2001, Microsoft announced that it was changing the way companies would pay for Windows, Office and all other Microsoft software. The new plan, called Volume Licensing 6.0 and Software Assurance, would take effect on Oct. 1, 2001.

Microsoft said Licensing 6.0 would simplify software licensing for both the vendor and its customers. It would propel Microsoft and corporate IT into a new era in which software became a service rather than a commodity. And, in spite of Microsoft’s stance, both CIOs and analysts noted it would also goose revenues on the aging Windows and Office franchises.

Licensing 6.0 was a seminal idea and not just because businesses everywhere run Microsoft software. Underneath this seemingly simple plan to change how companies pay for software lay a not-so-simple plan to turn Microsoft into a utility that provided the electricity to power businesses, now and forever.

Once that was understood, a strange thing happened. CIOs began to say no. No to Licensing 6.0. No to Software Assurance. And no to Microsoft’s vision of the future. And it may be that it is this general and spreading refusal to play ball with Redmond that will change the business landscape, not Licensing 6.0.

In many ways, the licensing plan had failed by the time it was launched in October. Microsoft judged five months to be a sufficient amount of time for customers to figure out the program and then sign up. It was right about the first part. Licensing 6.0 replaces confusing upgrade rules and options with a yearly fee, a subscription plan known as Software Assurance (SA). Pay the original license and the yearly fee, and you’re covered for all upgrades. That’s it. (More or less. The options that take you to the land of annual fees are wildly complex. See "Upgrade Options for Microsoft Office," Page 62.)

But the Redmond, Wash.-based vendor was wrong about users signing up. In fact, a CIO October survey of 122 IT executives revealed that only 15 percent of respondents were planning to enroll. In an October Giga Information Group survey of 4,550 technology professionals, 32 percent said they would not enroll in the new licensing plan compared with 7 percent who would; another 41 percent said they would wait and do nothing.

Five months, it turns out, is not nearly enough time when a vendor tells its customers to dig into their wallets right away. When Microsoft announced SA last May, many CIOs already had approved budgets for 2001. And those budgets did not include the added costs Licensing 6.0 and SA would entail. And when companies were told they also had to upgrade their software to the latest version (such as Office XP) before they could enroll in Licensing 6.0, CIOs took to calling themselves hostages.

"Typically, the large vendors we work with give us time when a significant pricing change comes along," says John Voss, CTO of Marshall & Ilsley, a Milwaukee-based banking and financial services company that manages $27.3 billion in assets. "Microsoft acted like a retailer in a corporate market. They just made a unilateral move, without consulting us."

If the timing was awful, the deal’s details, as they emerged, were even worse. Corporate customers had these options:

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