Microsoft: Audit, or there'll be trouble

In its continuing jihad against software piracy, Microsoft's legal department has sent letters to corporate customers demanding they conduct internal audits of their software licenses and submit their findings within 30 days to the software giant.

The letter, using language no less intimidating than the Internal Revenue Service might use, also includes a form that spells out the audit process. Customers must report the number of installs, documented licenses, license upgrades and unlicensed software. Covered in the process are operating systems, Office suites, individual applications, BackOffice products and the Visio product line.

The audits are not only costing IT shops time and money (some well into five figures), but several customers contacted this week who received the letters without warning said they bordered on harassment.

"I don't want federal marshals to walk in here with a warrant," said a chief information officer at a Midwestern health care concern who asked not be named. The stern missive he received was dated 16 May and signed by Microsoft corporate paralegal Heather C. Logan. The chief information officer has already asked for a 30-day extension to comply with the letter, which in italic type reads: "Please complete and return the audit survey within 30 days."

The letter stops short of threatening repercussions if a recipient doesn't comply, but Microsoft Associate Counsel Nancy Anderson said hauling customers into court would only be "a last resort". Anderson added that Microsoft has targeted 5,000 midsize businesses as part of its longstanding anti-piracy campaign.

"It's medium-size corporations who we believe have a larger compliance problem as a result of growing rapidly," Anderson said, soft-pedaling any notion that Microsoft is ready to use a big stick.

Regardless, some of Microsoft's most loyal customers said they feel whacked.

One vice president of information services at a financial services company, who also asked not to be named, said he doesn't begrudge Microsoft's right to pursue unlicensed software but questions its tactics. He said he initially received a mild letter asking if his company would volunteer to be part of a compliance program. Then, in March, a sterner letter requesting the audit came from an outside law firm apparently working on Microsoft's behalf.

"They want to scare us into compliance. A Microsoft rep has never been here and asked us about it, and the information they have about our licenses is so inaccurate," the vice president said, adding that his company has spent about $200,000 (about £140,000) on Microsoft products over the past several years. "For your business partner to be that bad, if there was a competitor some day, I'd switch. You'd think they have bigger fish to fry."

The health care chief information officer said he has no idea how he was selected and estimates the audit will cost him between $10,000 and $20,000. "We have very solid practices about who can buy software and who can't," he said. "I don't have enough hours in the day to be the software police. We're a rural health care facility."

One problem, he said, is finding all the software licenses that have accumulated over the years, especially with PCs containing pre-installed packages for which customers often don't register the software with Microsoft. Even if they did, it might not matter. The chief information officer's month-old request to find what Microsoft has on record regarding his licenses has yielded no answers.

On top of that, he's found that "ghosted machines" have complicated the audit. That's when one CD and its associated key generating the license number is used on multiple PCs. Those PCs still could be covered under a multi-unit license even though different CDs and keys weren't used for each unit.

The chief information officer suspects the Redmond, Washington company has two motives: to lay the groundwork for its new software subscription programs and to squeeze out more revenue using legal tactics. After all, the phone number in the letter to reach a Microsoft Licensing Specialist drops the customer into Microsoft sales.

It's about education Anderson said the audits are being handled by both the sales and legal departments at Microsoft.

"Our intention is not to be intimidating," she said. "We're both trying to educate these customers and hope they can come and talk to us about it."

Anderson added that such letters have been going out for two to three years. "There is a clause in the Open License that says we have the right to request an audit and assure they are in compliance," she said.

Kym Pfrank, vice president of information services at Union Hospital, in Terra Haute, Indiana, also received a letter but is taking it more in stride.

"It didn't bother me too much being in the environment we are in these days," he said. "The government has stepped up their reviews of hospitals, looking for Medicare fraud and that kind of thing. It's just another thing to deal with."

Nonetheless, Pfrank estimates the audit will cost Union Hospital $10,000, although he is confident his organization is in compliance, thanks to its use of Novell's ZENworks.

Pfrank also suspects Microsoft of lacking its own reliable customer data and so of wanting to set a license baseline in anticipation of charging for annual software subscriptions.

"Microsoft is getting ready for global licensing much the way IBM does it, and that depends on how many licenses you have," he said.

Asked if small businesses and consumers might some day also receive such a request from Microsoft, Anderson said probably not. "We try to communicate with them more broadly across the size spectrum," she said.

The Business Software Alliance, a software industry lobbying group, estimates that 24 percent of all software in the US is pirated, amounting to a loss of $2.6bn in 2000. That compares with 25 percent in 1999, according to the BSA, which has conducted its own aggressive and sometimes controversial campaign to stomp out illegal software.

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