by Scott Kirsner

Why Microsoft Created Licensing 6.0

Jan 15, 20022 mins

Reason Number One: It simplifies software licensing.

At Microsoft, upgrades spawned a new lingo. Big licensing programs came with names like Select, Volume and Enterprise. And there were five upgrade options: Competitive Upgrades (CUPs), Volume Upgrades (VUPs), Product Upgrades (PUPs), License Upgrade (LUPs) and Upgrade Advantage (UA).

Many CIOs assigned an employee just to manage these licenses. And many companies, whether on purpose or not, used software with lapsed licenses. Giga Information Group reports that 90 percent of its clients have some problem with license compliance, and 40 percent of those have “significant” problems.

Customers pleaded for simplicity. Microsoft had a reason to simplify. Licensing 6.0 seemed to create a classic win-win situation.

Reason Number Two: The Revenue Buildup

The Internet has shifted IT priorities. E-commerce software and CRM take precedence over productivity applications like Office. Three years ago, Windows and Office upgrades accounted for more than 50 percent of Microsoft’s revenues, according to Giga. Today it’s 36 percent. In the second fiscal quarter of 2001, desktop applications brought in $2.5 billion, 2 percent less than the previous year.

The perceived value of the upgrades has waned, and so has the tolerance for costly upgrades. Or as Lee Lichlyter, CIO of Kansas City, Mo.-based Butler Manufacturing, says, “Look, Office just isn’t strategic anymore.”

In the CIO October survey of 122 IT executives, about half (52 percent) said their companies had upgraded to Office 2000, now 2 years old; 45 percent were still using Office 97. Licensing 6.0 and Software Assurance are meant to reverse the anti-upgrade trend by locking users into regular payments that also guarantee users the latest features.

Reason Number Three: It pulls customers into Microsoft’s .Net Future

With Licensing 6.0, Microsoft wants to launch itself into the next software epoch, when customers will subscribe to software and have it delivered to their computers. Or they will subscribe and have someone else manage it. But no one will buy a product?a discrete chunk of code.

This is Microsoft’s vision: a platform called .Net (see “.Net Gain?” July 1, 2001.)

Rebecca LaBrunerie, Microsoft director of worldwide licensing and pricing, says services will dominate in the future. Upgrades will be “drizzled out more frequently,” so frequently, in fact, as to make any licensing scheme other than a subscription impracticable.