Microsoft's licensing practices push three utilities to re-evaluate their software needs.
The foundation of the Microsoft monopoly over operating systems and productivity applications may be developing hairline cracks, if the experiences of three utilities are any indicator.
Ironically, Microsoft's overly zealous attempts to sign up customers for a yearly licensing subscription program may have pushed these companies, and others, to look at options like Linux and IBM's Lotus SmartSuite.
The incipient revolt began in May 2001, when Microsoft announced a new approach to licensing its products to corporate users. Called Licensing 6.0, the program aimed to move business users to a yearly subscription fee to license software like the Office suite of products, or operating systems like Windows 2000 or Windows XP. Previously, Microsoft had discounted the cost of buying the upgrade version outright by 30 to 50 percent, so that Office, which retails for around $450, would cost businesses around $260 to upgrade-and they could upgrade at a time that suited business needs.
Under Licensing 6.0, yearly fees are due regardless of whether Microsoft releases an upgraded version during the license period. Those who did not sign up for a program under Licensing 6.0 have to pay the full cost of the new version when they do decide to upgrade.
Initially, Microsoft gave customers just six months to agree to the new licensing fee structure. But customers objected strenuously, particularly those who typically upgraded every four years and had not planned an upgrade in 2001 or 2002. For those customers, Licensing 6.0 meant paying immediately for software that the organization didn't need. Even for those who planned an upgrade in 2002, coughing up additional licensing revenues in 2001, when budgets had already been set for the year, was unpalatable, if not impossible.
As a result of these complaints, Microsoft eventually extended the deadline for signing to July 31, 2002.
Utility companies' responses to Licensing 6.0 ran the gamut. Some, like TXU, were at the end of their license term anyway, and decided that upgrading under the new program was a good fit with their needs, according to a TXU spokeswoman. Indeed, for companies that upgrade their software regularly every two to three years, Licensing 6.0 can probably save money, most IT consultants say.
Yet according to the Yankee Group, half of all corporate software users wait three years or more to upgrade, so many utilities hesitated to sign up for Licensing 6.0. Ameren, for example, signed up for a Select License, rather than an Enterprise License, and paid also for Software Assurance support and upgrades. Software Assurance provides additional training, discounts, and partner services for those licensees. But Ameren expressed doubts about what course it would pursue when that license is up in 2004. Another option, chosen by Westar Energy, was to sign up for a Select License, which covers fewer products than the Enterprise option, not sign up for Software Assurance, and start actively investigating alternatives to Microsoft products. At the far end of the spectrum are companies like Otter Tail Power, which decided not to sign up for any option under Licensing 6.0 and instead pay the cost of a new license fee when they decide to up-grade-likely in four or more years.
A Little Bit Onerous
Two motivating factors pushed Ameren to sign up for Software Assurance. First, the company was already two versions behind the current (XP) version of Microsoft's Office products. And some third-party applications depended on having more current versions of Microsoft software installed.
"If we didn't take on the Software Assurance package, and relicensed later, it would have cost three to four times as much as what we paid for Software Assurance," says Dave Braun, senior engineer in networks at Ameren. And according to Tom Vavra, supervising engineer of network engineering, the break-even point for waiting to upgrade was between four and five years. Although the company had just rolled out the Windows NT operating system, Braun says they were two versions behind on the Office suite and already had planned a rollout of XP when Microsoft announced the changes to its licensing program. "We didn't think we could wait the three to four years to make [an upgrade] economical and feasible to relicense," Braun says.
What drove the XP rollout, however, wasn't necessarily any new features of the Office XP suite. "There were no compelling new features in the upgrade, but we need to stay current from a support standpoint," Vavra says. "There was some level of third-party application dependency that may utilize Office in some regard. We can't be too far behind on releases of [Office]."
Braun hazards a guess that Ameren will sign up for at least one more year of Software Assurance before making a decision about any further upgrades. He maintains that it is difficult to say whether, within the time frame of Software Assurance, Ameren will be able to utilize the upgrade rights of the program. "I don't know what we're getting for the money, in my personal opinion. I'm buying maintenance on a package that [Microsoft] may never roll out in that time frame. It's a little bit onerous," he says.
Looking at Linux
When Microsoft initially launched the Licensing 6.0 program and was pressuring customers to sign up for the Enterprise version, Westar Energy took a hard look at it and opted not to sign up. Instead, says John Fitzgerald, senior director of applications at Westar, the company signed up for the Select licensing program. It was a simple decision, he says, because going with the Enterprise license would have cost Westar two to three times more than the Select option, and for little benefit.
Part of the reason, according to Fitzgerald, is that Westar IT operates as an IBM shop with many Microsoft products running. For example, Westar uses a LotusNotes/Domino server for e-mail, as well as Lotus SmartSuite. The Enterprise option covered Windows, Office, and Exchange. "If we were an Exchange customer, we probably would have gotten benefit out of it," Fitzgerald says, "but it was a huge cost difference."
Yet, even before the Licensing 6.0 program gave many Microsoft customers pause, Westar had begun moving away from Microsoft products, Fitzgerald says. "The Code Red worm just killed us," he admits, "and that's when we made the decision to get away from Microsoft products."
Fitzgerald says that his department spends a great deal of time applying patches for Microsoft servers and workstation software. "That in itself has pushed us further away from Microsoft than their licensing," he says. "We know that licensing is a problem, but it's not as big a problem as security vulnerabilities [in Microsoft products]." Westar has moved its software development platform to Java and is looking hard at using Linux for an operating system.
Opting Out of Budget Pain
Otter Tail Power Co., like a lot of companies in America, has gone to a four-year upgrade schedule for computers and software. It was exactly this trend, according to many analysts, that motivated Microsoft to launch Licensing 6.0-to shore up sagging licensing revenues as companies delayed upgrades.
Because Otter Tail upgrades on a four-year cycle, signing up for even a Select License made little sense for the company, says Scott Wendorff, workstation specialist at the company. Typically, he says, the company upgrades 100 to 200 of its 700 computers a year. "We didn't think the pain of all that money up front would be beneficial for us," Wendorff explains.
So the company opted to participate in the Open Licensing program, which allows it to pay for licenses as it decides it needs them. This year, Wendorff says, the company might buy 100 licenses, or possibly even less. Licenses themselves cost more when purchased under the Open plan, but the fees are paid when the licensee chooses to upgrade.
Scrambling To Recover?
Otter Tail's plans are hardly music to Microsoft's ears. Nor is Westar's active look at Linux. As Julie Giera, an analyst at Giga Information Group, puts it, "Microsoft's arrogance got the better of them."
Companies have said they don't want to be the victim of Microsoft, Giera points out. The Licensing 6.0 program inadvertently opened the door for Linux and StarOffice, the productivity suite that runs on Linux, she says.
Giera says that the potential customer revolt really set Microsoft back on its heels, and as a result, the company has made changes in the Licensing 6.0 program that benefit customers. For example, Microsoft now allows licensing either by seat or device, which Giera says is a boon particularly for companies with mobile workforces. Also, to soothe customer complaints about the high cost of licensing under the new program, Giera predicts that Microsoft will add more maintenance and support for licensees.
Despite the splash that Linux has made in the wake of Microsoft's licensing stumble, Gierra doesn't think that Linux gained more than 1 to 2 percent of Microsoft's market share. But it was certainly enough to make Microsoft nervous. And in the end, that nervousness may translate to better licensing deals for all of Microsoft's customers, including utilities.
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