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Microsoft's Licensing Gamble

With just days to go before the July 31 deadline to sign up for its new software licensing policy, Microsoft will finally bring to an end a tumultuous, 15-month period of customer discontent -- a period brought on, in Microsoft's own words, by its own missteps in not fully communicating the plans' benefits.

The idea behind the Software Assurance program was relatively straightforward: Microsoft would scrap its outdated hodgepodge system of licensing agreements that consists of five different ways to buy upgrades in favor of a unified program that charges customers 25 percent of the license fee for server software and 29 percent for desktop software on an annual basis. It would allow customers to have guaranteed maintenance of their software, much like the system used for mainframes.

Soon, however, Microsoft faced a customer revolt, as many businesses saw the plan as confusing and designed to wring more money out of them. After delaying the program twice, Microsoft still faced customer unhappiness. Just three months ago, researcher Gartner Group estimated that 35 percent of businesses had joined the program.

Since then, Microsoft has poured $20 million into an aggressive plan to put a kinder face on the Software Assurance, taking out advertisements, holding seminars, and visiting with key clients.

"There's been a fair amount of confusion out there with a lot of misinformation out there," says Rebecca LaBrunerie, Microsoft's program manager for worldwide licensing and pricing. "We believe in the last six months we've touched our customers at least once and maybe more than once."

But some analysts say the software company's damage control could be too little, too late, as the new program leaves behind still-grumbling customers more eager to find alternatives to Microsoft's ubiquitous products.

Sowing More Confusion
Microsoft insists the new volume-licensing policy is nothing more than a way to provide customers with a more simplified system. The company has estimated that half of all enterprise customers would see no change in their costs, 30 percent would see a decrease, and 20 percent would pay slightly more.

"I've got plenty of customers who tell me, 'This is going to cost me more money.' And then, when I actually look at their purchase history, I can prove to 'em it's going to cost 'em less," Microsoft CEO Steve Ballmer told Computer World in June. He said that even for those customers whose costs would rise, they would still benefit from a "rational and predictable framework" for costs.

However, many companies have found the framework neither rational nor predictable, according to industry analysts.

"I don't know if they've cleared up all the confusion," says Alvin Park, an analyst with Gartner Group. "I get calls every day from clients still trying to figure out what to do."

LaBrunerie says Microsoft realized that Software Assurance initially confused customers, who thought the program was required or would nullify their licensing agreements.

"We created a lot of confusion by the way we rolled it out," she admits.

While LaBrunerie holds that Microsoft has made up for its initial missteps with an aggressive marketing and education push, others are not sure.

Many customers complained that Microsoft was eliminating confusion by eliminating choices, such as the version upgrade program, which allowed customers to upgrade software in the same family at a discounted rate.

"They've admitted there's been a communication problem," says Park. "What they haven't admitted is that there's anything wrong with the program."

Microsoft: the anti-Enron? Will Microsoft's obsession for predictable revenue lead to a customer rebellion? See Page 2.