Microsoft licensing prices tipped to fall

The discovery that the sale of second-hand Microsoft user licences is legal could mean big savings for companies

Licensing prices for Microsoft software are set to plunge because of a second-hand market which has sprung up, thanks to a loophole in its terms and conditions.

As reported last week, a UK firm called Discount Licensing is buying software licences from companies that have gone into liquidation or have lost staff and reselling them to other companies.

Discount Licensing is taking advantage of British insolvency laws and a clause within many Microsoft licences that permits disused or unwanted volume licences. The company claims be selling its licences at a discount of around 20 to 50 percent below prices of any other authorised Microsoft reseller.

David Roberts, chief executive of the Corporate IT Forum, which represents IT directors from Britain's largest companies, believes pressure from Discount Licensing could force traditional resellers to become more competitive.

Roberts predicted that second-hand licensing could bring licensing costs down and help businesses save money. "This will force the reseller community to justify the value of its services and keep prices down," he said.

Discount Licensing has sparked fear among resellers that its cut-price licences would damage the industry but Roberts is convinced that users and dealers will benefit from a more competitive market.

"Theoretically this makes great sense. I see no reason why they shouldn’t be sold on the open market if they are legal. It’s a convenient way for some organisations to save money. Anything that brings down the cost of licensing will be welcomed by IT directors," he added.

Second-hand licences will not suit all businesses though, warned David Mitchell, software practice leader at analyst group Ovum.

"If you have a business need for the very latest software it won’t benefit you to buy older versions just because it’s cheaper," he warned. "It puts a challenge out to the reseller community to show the value in their services, but in no way will this 100 percent replace resellers, it is a peripheral service."

The opening up of a second-hand market should have a positive impact on the industry, according to Mitchell. "It recognises that software is an asset that organisations should value and manage in the same way as they manage other major asset classes," he stated.

Until now, many organisations have not had a mature way to manage their software assets and this has led many to become non-compliant with their licensing terms, Mitchell said.

The arrival of Discount Licensing is likely to cause an element of price disruption in the Microsoft economy, but ambitious resellers could turn the situation to their advantage, Ovum believes.

"There are already signs that some Microsoft resellers are uncomfortable with this offering. However, we see the potential for a new set of market opportunities around second-hand software," said Mitchell.

Peter Bole, programme manager at Kent County Council's information services group, explained that public authorities have to go through a formal procurement process before changing software supplier.

"Evaluation of any tender response would be based on a combination of the original requirements specification and value for money. If the scope of a second-hand licence is identical to new and the title is able to be transferred, I see no reason for these to be excluded from the process," said Bole.

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