Commentary: What's with Microsoft's upgrade ultimatum?

Wouldn't it be great if you could get all your big customers to make their next two years' worth purchases all before October 1--and still give you more money over the coming two years? That's exactly what Microsoft is doing.

Wouldn't it be great if you could get all your big customers to make their next two years' worth purchases all before October 1--and still give you more money over the coming two years? That's exactly what Microsoft is doing, and short of customer revolt or federal action, they will probably get away with it.

Microsoft is giving its corporate volume buyers this choice: Get "current" by October 1 or pay full price the next time you need new software (with no upgrade discount).

Here's the kicker: Microsoft is defining "current" as a computer running either Windows 2000 or with an agreement to purchase Windows XP. These computers must also be running Office XP, which has only been released to volume buyers for about three weeks.

Here's the background: Last week, Microsoft announced massive changes to its licensing programs. Almost all corporate customers--that is, customers who buy software at a discount from Microsoft--are affected. Microsoft says the impact won't be huge, but analysts and others who've looked at the program worry that perhaps many, if not most, MS customers are in for a rude surprise.

Under the new Software Assurance program, companies that are "current" can sign up for maintenance agreements and get future upgrades as part of the deal, but will pay 25 to 29 percent of the purchase price every year for this perpetual license--whether they want the new software or not.

This change in licensing impacts nearly 60 million computers used by US businesses, according to Guernsey Research analyst Chris LeTocq. True, this is how much corporate software is already sold, but this is new for desktop software, and it's an expense none of these customers was expecting. Most, in fact, aren't even aware this is happening.

In Microsoft's defense, some companies that already have agreements and have been upgrading every 24 months or so will be rewarded for their extreme fealty to Microsoft with reduced costs under the new plan. But such companies are few and far between.

There is a saying that people who are walking on eggshells shouldn't jump. I'm sure the same concept applies in business, too. And given that Microsoft is already walking on eggshells--in the form of the government's break-up attempt--why would they be going out of their way to prove the feds right?

Why is Microsoft doing this? Because corporations have become leery of upgrading--many taking only every second or third Microsoft release--and Microsoft has less and less compelling things to offer them. Redmond looked out and saw a corporate market essentially yawning at the prospect of buying Windows XP and Office XP upgrades, looked at their balance sheet, and decided to take matters into their own hands. Microsoft needs cash, but it also needs desktops upgraded--and soon.

The world really will be a better place when Windows XP replaces all the Windows 9x out there. And Microsoft needs fairly frequent upgrades over the next several years to incorporate its new .Net technology into its desktops and servers. There's already supposed to be a release of Office .Net sometime next year, so it's hard to imagine companies upgrading now will be wild about the prospect of doing it again in less than 18 months.

.Net and other Web Services are potentially revolutionary and worth the trouble--but forcing people to pay for software they don't want isn't the way to make this revolution happen. Unless, of course, you accept that the only real revolutions happen at gunpoint.

I have tried to get Microsoft to explain why the situation I have outlined here isn't true. Microsoft has indeed confirmed the aspects relating to getting "current" by October 1 and what happens to companies that don't.

Yet Microsoft says only a small number of customers will see their costs increase (read more from MS). Yes, but over what period of time? Two years, six years, or between now and October?

Straight answers are hard to come by, so I am going to put this column out and demand that Microsoft explain itself in words we can all understand. I will also make more phone calls to find out what the big analysis firms are going to tell their customers about this. And I will be back with you tomorrow to tell you what I've found out and what it all means.

Microsoft has had the opportunity to deny the story essentially as presented here and so far has not. If they do, you'll be the first to know.