Can Microsoft’s complicated software licensing policies survive?

Summary:Matt Baxter Reynolds and Ken Hess debate the future prospects of Microsoft's approach to volume licensing.

Matt Baxter-Reynolds

Matt Baxter-Reynolds

Yes

or

No

Ken Hess

Ken Hess

Best Argument: No

17%
83%

Audience Favored: No (83%)

The moderator has delivered a final verdict.

Opening Statements

Complex systems need flexibility in procurement

Matt Baxter-Reyonolds: I think another way to look at this argument is that there's a presumption that is makes "more sense" to pay for software on a subscription basis as opposed to buying or leasing software as "big ticket" capital expenditure items.

No one would design an enterprise licensing framework like Microsoft's, or Oracles, or SAP's, or any of the big enterprise players. These organisations are about complex procurement of expensive systems built around relationships between the vendor and vendee. There is a reason why they are so complicated -- it's because these complex systems need flexibility in terms of their procurement.

That's the first part of my argument. The second part of my argument has to do with cheese.

We've had about thirty years of complex licensing from Microsoft. If the debacle over Windows 8's user interface changes are telling us anything, it's this -- Microsoft's customers do not like their cheese being moved. Whether people love or hate Microsoft's licensing frameworks are neither here nor there -- they may lose customers just by daring to change it.

 

Policies cannot and should not survive

Ken Hess: As early as 2001, TechRepublic writer Elizabeth Nelson shared a graphic summarizing a survey stating, "Microsoft's licensing policy opens the door to Linux." The survey results showed that 40.5 percent of the respondents said that they will consider Linux as a workstation alternative to Windows. Surprisingly, Microsoft has revamped its licensing policies but still a third-party company (Directions on Microsoft) has to offer a "Licensing Bootcamp", a two-day class on licensing compliance and policy. If that weren't strange enough, they have the audacity to charge $2,495 for the class.

In case you don't know why you should attend this $1,250 per day licensing extravaganza, they tell you why: "You already know this better than anyone: Microsoft licensing presents an overwhelming array of programs and choices, each with its own set of implications that could seriously impact your IT operations, budgets, and plans."

The financial impact to business is too great. Microsoft's licensing policies will force businesses to make some tough choices that won't favor Microsoft. The policies cannot and should not survive.

The Rebuttal

  • Great Debate Moderator

    Check in

    Good morning

    Posted by Jason Hiner

    Ready

    Let's go to it.

    Matt Baxter-Reynolds

    I am for Yes

    Me, too

    Rarin' to go

    Ken Hess

    I am for No

  • Great Debate Moderator

    Current policies

    Sum up Microsoft's current licensing policies and how they support Microsoft's business model, and then answer this question: Is it sustainable?

    Posted by Jason Hiner

    Too complex

    Microsoft's current licensing policies can be described as complex. They have a number of programs available looking to satisfy the needs of different types of customers.

    Do I think it's sustainable? Yes. For reasons I'll go into, on-premises makes more sense to licensing traditionally using Microsoft's current models, whereas SaaS makes more sense on a subscription "per user/per month" basis.

    Matt Baxter-Reynolds

    I am for Yes

    Too complex

    I don't think that Microsoft can summarize their licensing policies in 500 words or less, so it will be impossible for me to do so in the alotted time and space that I have. The complexity of their licensing is so high that they offer a two-day course and a 57 page Microsoft Volume Licensing Reference Guide that they've self-described as follows: "This guide is an overview of the key features of Microsoft Volume Licensing programs." Let me reiterate that this is a 57 page overview. So, no, I can't summarize Microsoft's current licensing policies here. Sorry.

    To the second part of the question, "Is it sustainable?" No, the previous paragraph and associated document should prove this. There's so much complexity built into Microsoft's licensing and there are so many people dedicated to licensing at Microsoft (500 to 1,000) that it is not a sustainable model.

    Ken Hess

    I am for No

  • Great Debate Moderator

    How do they compare?

    How do Microsoft's licensing policies compare to enterprise rivals like SAP and Oracle?

    Posted by Jason Hiner

    Same nightmare

    More or less the same level of nightmare complexity. No major enterprise software provider has a straightforward licensing regime!

    Matt Baxter-Reynolds

    I am for Yes

    Oracle's is better

    Oracle offers a simple matrix type price guide for its software licensing options. It doesn't appear to be very complicated in this 13 page document where it lists its products, license levels and corresponding prices. There are a few different price lists available including ones for applications, business intelligence, Oracle On Demand and a few others.

    SAP licensing isn't as straightforward as Oracle's but is nowhere close to Microsoft's level of complexity. SAP offers a 26 page guide to explain the different software licensing models  - Use the second link in the list.)

    Ken Hess

    I am for No

  • Great Debate Moderator

    Starting fresh?

    How are new rivals like Salesforce and Google Apps changing the game?

    Posted by Jason Hiner

    Need flexibility

    The advantage of this model is that it's relatively easy to budget for. You have "n" employees at "x" per month, therefore you know what the ongoing cost is.

    The disadvantage of that model is that you can't get off if you need to. If you come under budgetary pressure, you have to turn the system off. With perpetual licensing, you have the flexibility to stop spending on, for example, maintenance and upgrades if it comes to the crunch.

    Matt Baxter-Reynolds

    I am for Yes

    Web-based is the key

    Software as a Service (SaaS) is a good model for businesses to use because it really levels the playing field for small- and medium-sized businesses whose budgets and profit margins are often very thin. Salesforce.com and Google Apps not only have a better overall cost model, the applications are web-based, which means that they can be accessed from anywhere by user login, not by seat or device.

    The game changing behavior is in that ability to access an application from any device without having to install any local software. You don't have to purchase one license for your desktop computer, one for your laptop and another for your tablet, which must be compatible with the software. Using the SaaS model, you pay for a user access license and it doesn't matter which type of device the user connects from. The user experience is the same on any device and there's a single license subscription fee.

    Ken Hess

    I am for No

  • Great Debate Moderator

    Learning from the past?

    What moves is Microsoft making to adapt to the new paradigm?

    Posted by Jason Hiner

    Choices

    They are looking to create a blend of more "retail"-style SaaS licensing (Office 365 is one example) with their existing licensing programs. The idea here is that the customer has a choice, depending on the sort of organization they are and what strategies they have in place.

    Matt Baxter-Reynolds

    I am for Yes

    Making it easier

    Microsoft recently debuted its Office 365 as a SaaS offering. Microsoft has setup plans for every size of business plus plans for individuals. The pricing is very low, as little as $5.00 per user per month. Office 365 takes a lot of the complexity out of its Microsoft Office suite licensing with this product.

    One thing to note about SaaS offerings as my own observation. Every year Microsoft loses millions of dollars in pirated software. SaaS will stop that. So, Microsoft, in the end, stands to gain legitimate users with Office 365 and make more money with fewer issues dealing with piracy. I believe that this new paradigm is a win-win for users and for Microsoft.

    Ken Hess

    I am for No

  • Great Debate Moderator

    Office is slipping

    According to one recent study, 97 percent of "top ranked startups" have chosen Google Apps over Microsoft Office and Exchange. Given a green field, are most new companies going to choose the SaaS model over traditional licensing?

    Posted by Jason Hiner

    Depends on income

    I think that would depend on who the startup hires to help them and how much money they have.

    A small startup with a distributed team without any weird requirements would do well to put everything in the cloud under SaaS licensing, simply because it's a much simpler way of incepting a new "IT department". However, a larger startup with a CTO from an enterprise background with an understanding of complex licensing may feel that's the better choice going forward in terms of budgetary control and flexibility.

    Matt Baxter-Reynolds

    I am for Yes

    Making them happy

    Yes, they will choose SaaS for the reasons I discussed in Question #4. Lower cost, no licensing stress, no chance for piracy and the ability to access applications and documents from anywhere on any device creates a more powerful, more capable and more financially stable work environment.

    For twenty years, I've heard the moans and groans of small business owners lamenting the high cost of Windows, Microsoft Office and Client Access Licenses. SaaS is an excellent way to diffuse most of the complaints and the costs

    Ken Hess

    I am for No

  • Great Debate Moderator

    The enterprise...

    While SaaS makes sense for many small businesses, what about the enterprise? Is it realistic for SaaS to be able to deal with the complexities of enterprise software?

    Posted by Jason Hiner

    Over its head

    I think these two issues are tied together into the ideas as to whether things are living in the cloud, or things are living on-premises.

    The rationale for subscription models on cloud-based services makes more sense if you consider that as well as a the cost of the software, you're also paying for electricity, staffing, and everything else that you need to run a data centre.

    If you're running systems on-premises, you're paying for the costs to "keep the lights on", so actually is it reasonable to pay a subscription for on-premises systems? I would say not -- a traditional "software and services" package makes more sense here.

    I'd also say that, no, I don't think SaaS is enough to deal with the complexities of enterprise software. If you're looking at very large (multimillion dollar deals), I don't think that fits well into a message of per user/per month subscription.

    Matt Baxter-Reynolds

    I am for Yes

    Much simpler

    It's far less complex than rolling out 20,000 or more new versions of a software product to users. I've been on the delivery end and it's a mess. With SaaS, there's only one upgrade--on the server side. All employees receive the same version of the software at the same time without regard to patch levels, desktop configurations, antivirus software or other local software problems that plague large software upgrades and rollouts. Enterprises, perhaps, could benefit the most from SaaS.

    Ken Hess

    I am for No

  • Great Debate Moderator

    Licensing issues

    What does the recent backlash over Office 2013 licensing say about where Microsoft licensing is going?

    Posted by Jason Hiner

    Getting the message across

    I'm not really sure it was a "backlash" -- quite a few people were vocally upset about it, but it did get smoothed out.

    But it did get the message out there that Microsoft does like to see Office 2013 being sold on a subscription basis, particularly to individuals and smaller businesses.

    Matt Baxter-Reynolds

    I am for Yes

    No freedom of choice

    I assume by backlash you're referring to the PCWorld article by Tony Bradley that discusses Microsoft's Office 2013 licensing policy and the uproar it caused. Microsoft changed its policy in response to that uproar.
    The change says that Microsoft has to modernize its licensing to fit the new paradigm and it's long overdue. To license a software product to a specific bit of hardware is ridiculous and as PCWorld's Tony Bradley also put it, Microsoft's licensing policy was nothing short of "Draconian."

    If I purchase an operating system license, an Office license, a database license or any license, I am the one purchasing it. If I choose to uninstall it from one piece of hardware and install it on another, I should have that privilege because I've purchased the license to use. As long as I don't violate the license by installing it simultaneously on different pieces of hardware, I should be fine. Until Microsoft changed its policy, that wasn't the case.

    I recall having to call Microsoft to explain that a computer crashed and was dismantled before they would reinstate my Office 2007 license so that I could install it on another computer. Though I had to plead my case with the finesse of F. Lee Bailey, the support person finally relented and reset the license for me. It's wrong to think that I could lose $1,000 worth of software due to a hardware crash or decommission.

    Ken Hess

    I am for No

  • Great Debate Moderator

    Do both?

    Can Microsoft successfully compete against itself by simultaneously offering both subscription and traditional licensing?

    Posted by Jason Hiner

    Big improvement

    Yes, because what's happening here is "horses for courses". Smaller business that prefer cloud-based systems will choose the subscription path. Larger business that prefer on-premises systems will choose a "big ticket" licensing path.

    Matt Baxter-Reynolds

    I am for Yes

    It's evolving

    Certainly it can and it will, for a while anyway. Why shouldn't it? There are people who won't fully convert to a subscription or SaaS model for years, so Microsoft won't lose a huge amount of revenue from traditional licensing anytime soon.

    You only have to compare this situation to hardware vendors to see the proof. There are people who purchase laptops and those who lease them. It's not an all or nothing game in hardware and it won't be in software for a few years more. Eventually traditional software licensing will give way to subscriptions but you might have a few more gray hairs before that happens.

    Ken Hess

    I am for No

  • Great Debate Moderator

    The beginning of the revolution

     When do you foresee the tipping point when enterprises will no longer want to keep paying traditional licensing fees for software?

    Posted by Jason Hiner

    Not necessarily

    I'm not that that tipping point will come in the sense the question implies.

    I think there's a natural split between cloud systems and on-premises systems. The question is how far and how fast "all" businesses move to cloud-based systems. (And by implication effectively outsource their datacenter services and associated costs through SaaS subscription payments.)

    I'm not sure that will ever get to a point where we never see on-premises. Is it likely someone like a car manufacturer will give up their on-premises ERP and move it into the cloud? I'm not convinced.

    Matt Baxter-Reynolds

    I am for Yes

    Other options

    The tipping point will be when there are viable options for enterprises. Salesforce.com is a fine example that you gave earlier. There's been no complaints about that model and they're doing just fine. Microsoft will do the same. For products such as Office, Visio, Project and other standalone applications, the transition will be easy. It will be more fun to watch operating systems go subscription-based.

    Ken Hess

    I am for No

  • Great Debate Moderator

    Last question, Microsoft's survival?

    How important is Microsoft's handling of the licensing fee issue to the future of the company and its business model?

    Posted by Jason Hiner

    It's too big to fail

    I'm not sure it is that important. Microsoft is a successful company -- they know how to get money out of their customer base. Being more "subscription heavy" might help them both in terms of cashflow and in terms of reducing piracy, but it's certainly not the most pressing problem that Microsoft faces.

    Matt Baxter-Reynolds

    I am for Yes

    Microsoft has to change

    If you're still talking about the Office 2013 backlash, I can only imagine that it shows that Microsoft can change with the times and that it does care about its customers. I think that Microsoft realizes that its "Draconian" licensing policies are outdated. Microsoft has to change them to fit the needs of businesses and individuals who are tired of paying a lot of money for software licensing that's locked to a single device.

    If Microsoft sticks with the old licensing plan, then they will lose a tremendous amount of revenue to companies like Google, Apple, Salesforce.com that will pick up the disgruntled user base because users aren't going to be bound to a single device or an outdated licensing policy.

    Ken Hess

    I am for No

  • Great Debate Moderator

    Thanks everyone

    It was great to have you. And I'm sure you'll agree that the debater's did a fine job. Check back Wednesday for the closing arguments. The final verdict will be posted on Thursday.

    Posted by Jason Hiner

Closing Statements

Licensing regime will survive

Matt Baxter-Reynolds

For me, Microsoft's licensing regime will survive for as long as there are people deploying complex, on-premises enterprise systems. A per user/per month subscription model does not work well enough in that scenario. Both the vendor and vendee need the flexibility that comes from complexity. If you need to push through a multimillion dollar deal, you need something more nuanced than just "multiple the number of users you have by 'x'".

Over time I think we'll see more SaaS-type deployments sold on a subscription basis, but this has more to do with outsourcing compute power and maintenance to the cloud rather than any inherent benefit in subscription licensing.

Of course, SaaS has an ancillary benefit of making sure that users have the latest and greatest -- i.e. the most well-patched, most secure and safest. That's a good thing for everyone.

Licensing reform is overdue

Ken Hess

Microsoft's licensing schema is far too complex for most companies to manage. Microsoft has an estimated 500 to 1,000 employees who work in product licensing. That points to a system that requires far too much overhead to maintain. It's inefficient for Microsoft and it's near impossible for businesses to comply with the convoluted licensing for operating systems, servers and applications.

The Office 2013 backlash that Jason referred to in the debate is an example of how the Microsoft licensing plan begs for reform. In fact, once Microsoft recovers from the Office 2013 licensing change and the launch of Office 365, I'm hoping that they launch the Great Licensing Reform of 2014.

SaaS-style applications such as Office 365 should help resolve licensing issues for Microsoft's customers. A subscription pay-as-you-use model is good for customers and for Microsoft alike. Customers will benefit from being untethered to a single computing device. Additionally, the upfront cost to businesses will be easier to manage. Instead of spending a huge lump of cash for software licenses, businesses can ease into a payment plan of sorts with predictable recurring subscription costs.

For Microsoft, a reformed licensing model creates a more honest customer count and, in turn, would generate more revenue for Microsoft because this type of software use would be impossible to pirate. The SaaS and subscription models work for other businesses such as Salesforce.com, Google and VMware. It's a proven system. Customers like it and so do vendors. License management for both parties is simple.

Change isn't easy but it's time that Microsoft follows this trend that has almost left them behind.

Unsustainable

Jason Hiner

This is almost one of those "wrong side of history" issues. As Matt pointed out, there are some advantages to the traditional software licensing model that is Microsoft's bread-and-butter -- namely "budgetary control and flexibility" (if you know how to navigate it correctly).

However, as Ken said, even among companies that live or die on traditional licensing, Microsoft has an inordinately complex set of options for businesses to sort out. And, beyond that, the subscription licensing model offered by SaaS providers -- Microsoft's biggest competition -- solves other problems as well. The biggest one is being able to access applications from any devices -- work machine, home machine, tablet, smartphone, Internet cafe, etc. The other big issue is software updates, upgrades, and rollouts.

As a result, I'll rule with the crowd on this one. Microsoft's current licensing policies are completely unsustainable.

 

Topics: Great Debate

About

Jason Hiner is Editor in Chief of TechRepublic and Long Form Editor of ZDNet. He writes about the people, products, and ideas changing how we live and work in the 21st century. He's co-author of the upcoming book, Follow the Geeks (bit.ly/ftgeeks).

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