Microsoft to Tweak Licensing Plan for SMBs

Microsoft is widely expected to tweak its Licensing 6.0
volume licensing program Saturday in an effort to make the program more
appealing to small- and medium-sized businesses (SMBs) which rejected the
plan when it went into effect in August 2002.


Gartner Group analyst Alvin Park said Microsoft began training its channel
partners in the new licensing option, dubbed Open Value, on Nov. 21, 2002.
He said Microsoft will make the option available in the U.S. and Canada on
March 1, 2003. A similar program launched in Europe, the Middle East and
Africa in September 2002.

Under Licensing 6.0 and its Software
Assurance program
, Microsoft attempted to rein in its array of
licensing schemes with a single program under which customers buy two- or
three-year maintenance contracts under an annuity model. This has the
effect of locking the customers into Microsoft’s products because they
essentially pay for upgrades in advance. Also, because forthcoming
upgrades, like Microsoft’s Office 11, won’t support earlier versions of
Microsoft’s Windows operating system (Office 11 will only work with Windows
XP and Windows 2000), customers who go with the program may have to upgrade
their operating systems as well.

Deutsche Bank Securities estimates 400 million desktops still run Windows
NT or 9x.


Also the up-front payments of the program made it difficult for SMBs to
access. Gartner estimated that it raised the majority of customer fees
between 33 percent and 107 percent, and up to two-thirds of customers
either rejected the plan outright or chose to go with partial upgrades
under the Licensing 5 program.


With some analysts estimating that SMBs make up about half the install
base, that presents a problem for Microsoft, especially since smaller firms
have more flexibility in switching to Open Source alternatives.


The Open Value option is intended to change that. “In launching Open Value
in the United States and Canada, Microsoft provides options for spreading
the cost of its License and Software Assurance (L&SA) packages over several
years while building its future annuity revenue streams,” Park said. “Open
Value includes a three-year term with a three-year renewal option and is
available for five or more L&SA packages. The new option targets SMBs with
five to 500 desktops, but Microsoft put no cap on who qualifies for this
new payment plan.”


According to Park, SMBs will now have a number of options when it comes to
licensing Microsoft products. First, he said, companies which basically
only refresh their software when they refresh their hardware would probably
be better off with an original equipment manufacturer (OEM) license. SMBs
which buy more than five licenses but plan on upgrading their software less
frequently than every 3.5 years would be best served by Open License
Business or Volume without Software Assurance. However, businesses which
plan on upgrading software more frequently than every 3.5 years, or who
want to level out their software payments and standardize on Microsoft
software, would be best served by going with Open Value and Software
Assurance.

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