GS: Microsoft's Altered Model Matters Little
Page 1 of 1
As many companies race to stay ahead of the curve in the evolution of the Web, Microsoft Corp. is no different. The software giant, too, is in the midst of changes -- changes that Goldman Sachs (GS) addressed in a research report Tuesday.
Noting that Microsoft has been opting for recurring revenue streams as of late -- with the firm's pending software-as-a-service play .NET penciled in as primary example -- GS said analysts have been talking about how the outfit plans to move its perpetual software licensing business to a recurring revenue stream.
Specifically, Microsoft has been "renting" its Office XP suite. GS' Rick G. Sherlund and Nils Tristan noted that Microsoft has tested these waters with customers in Europe by offering them new enterprise licenses that require that the customer renew agreements every few years to continue to use office; hence, the recurring revenue stream.
While GS is unsure whether or not Microsoft will give up up-front revenues to steer enterprise customers in the direction of recurring license models, the research firm said it does not anticipate much of an effect on beyond what is currently reflected in management's guidance and street estimates.
Moreover, Sherlund and Tristan said, "We would not expect an enterprise customer to agree to renewable contracts where they have to purchase the software again every two to three years without some inducement from Microsoft, so we are not convinced there would be any near term benefit from this potential shift in license terms."
The analysts said Microsoft could be "heavy handed" by killing the perpetual license option, but this would probably alienate customers unless the terms were similar to the economics of a perpetual agreement.