Report: Customers scrutinizing Microsoft license agreements more than ever

Tough economic times are leading customers to scrutinize their Microsoft licensing agreements more than ever before -- a fact that's leading Microsoft to provide some substantial deals and discounts.

That's one of the take-aways from long-time Microsoft watchers at Directions on Microsoft are providing in a new report on Microsoft's volume licensing programs, slated to be available this week. (An executive summary of Directions'  licensing report is available now.)

"There's a perfect storm brewing," said Directions analyst Paul DeGroot. "Customers are looking at licensing harder than ever before. And volume licenses are critical to Microsoft's well-being. When people don't renew, Microsoft loses immediate revenue. But these customers might not be back for two to three years," leading to more substantial losses for the Redmond software maker.

Microsoft is slated to announce its earnings for the third quarter of its fiscal 2009 on April 23. During the subsequent call with Wall Street analysts and press, Microsoft will, no doubt, be asked about its renewal rates for its volume license agreements -- the best-known of which are its Enterprise Agreement (EA) and its accompanying Software Assurance (SA) program.

The various promotional deals that Microsoft has been offering its volume licensees -- not to mention overall EA price cuts of up to 26 percent -- "tell us that it's tough out there," DeGroot said. Microsoft also has been increasing the rebates it is offering its large-account resellers (LARs) for selling EAs to smaller companies, DeGroot said.

As it has largely saturated the large and mid-market business areans with its volume programs, Microsoft is seeking to get smaller users into its volume programs, DeGroot said. Directions on Microsoft estimates that Microsoft already has volume license arrangements with 70 percent of companies with 5,000 or more PCs and 40 percent of companes with between 1,000 and 5,000 PCs. Among companes with fewer than 750 PCs, only about 12 percent have signed up for Microsoft's volume-licensing programs, according to Directions.

While customers can gain some substantial savings via EA and SA, there are certain customers for whom those programs make sense and others for whom they are not optimal, DeGroot cautioned.

For some customers, EA/SA might be the cheapest way to upgrade to Windows 7 when it becomes available, as a result of Microsoft extending coverage deadlines to include users who enrolled in the SA program last August. DeGroot said as a result of more liberal SA terms, some of those users could end up being able to upgrade to Windows 7 from previous versions of WIndows for $109 per copy.

That said, customers who are looking to maximize their capital and cash flow may not find EA/SA to be the best use of their funds.

"If you don't renew, nothing immediate happens. These agreements don't promise you any new software will be delivered" during a user's coverage period, DeGroot acknowledged.

But he pointed to the lesser-known Microsoft Open Value licenses as being "a very good tactical buy," especially for smaller companies that want some of the volume-licensing benefits that larger companies typically enjoy.

Directions on Microsoft is making its new licensing report available to its existing subscribers for free. It plans to sell copies to non-subscribers to its research services for $749.

Microsoft volume licensees: What's your take? Are you sticking with your EAs, SAs and/or open licenses through good times and bad? Or do you feel it makes more sense to use your IT budgetary dollars in other ways?