Why Microsoft is force-feeding customers upgrades

Summary:Why Microsoft is force-feeding customers upgrades.

COMMENTARY--When last we met, I expressed concern that yesterday's column about Microsoft's new software licensing scheme might be off base. And I promised to call analysts and seek a response from Redmond and report back.

The good news for me (but bad news for customers): I'm right, as were the previous news stories by Joe Wilcox. So far I've had two analysts, both briefed by Microsoft, tell me yesterday's column was spot on. Another analyst said the issue was complex and he hadn't studied it--putting him in the question mark column--and I am still waiting for three callbacks.

Meanwhile, when I spoke with Bill Henningsgaard, Microsoft's vice president of worldwide licensing and pricing, he refused to dispute the basic thrust of the piece, which is that many corporate customers are facing the prospect of an unexpected upgrade expense--potentially a large one--to avoid having to pay full price for their next upgrades. (Read more of what he's said on this issue.)

But paying full fare might not be such a problem: The VP also disputed claims that the penalty for not upgrading could double a customer's software cost. The penalty, he says, will only be about 35 percent.

If the maintenance agreement Microsoft wants customers to purchase after the upgrade (before an October 1 deadline) costs 29 percent of the full software cost, and you put the money in the bank instead of giving it to Microsoft, you don't have to wait much more than a year to break even by not upgrading.

So, if many corporations are going to be faced with the prospect of buying upgrades for Microsoft apps, servers, and operating systems by October 1 or risk paying significantly more if they wait, what does it mean?

In antitrust terms, this scheme to coerce big corporate customers to upgrade to Windows XP and Office XP, not to mention whatever it takes to bring their servers to "current" software, fairly shouts "monopoly practices." And it seems certain to attract what people at the courthouse call "judicial notice."

Yes, Your Honor, here we have Microsoft demanding a revenue spike solely for its own purposes and promising consequences if customers don't cough up on schedule.

Didn't I see a something like this on The Sopranos two weeks ago? The one where Tony sends Chris and Paulie Walnuts out to roust a Russian for some money he owes a member of Tony's "crew"? Paulie and Christopher get "upset" when the Russian mobster doesn't pay with a smile and take things, well, into their own hands.

Back to Microsoft: What Redmond is offering as a good deal speaks volumes about Microsoft's lack of confidence in Office XP and its fear of a general slowdown in its business upsetting Wall Street.

If this is what Microsoft resorts to in order to sell Office and XP upgrades, do you think they will send deranged Santa Clauses out to force kiddies to demand its forthcoming Xbox game machine for Christmas, at the risk of finding something worse than coal in their stockings if they don't?

Maybe Steve Ballmer and crew think this is the last upgrade that Greater Microsoft will get before the Big Bang of a judge's decision turns one company into the three or four that would exist in the A.M.--that's After Microsoft--world?

I'm going to let the dust settle for a bit on this issue and do some more research. I'll be back later this week to talk about the big picture, the greater meaning of it all, and what I think customers will do.

Is Microsoft unfairly wielding its monopoly-like clout? Or is this move simply smart business? TalkBack to me below.

Topics: Microsoft, Servers, Software

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