July 31, 2002: The most controversial piece of Licensing 6 is Software Assurance, through which businesses pay 29 percent annually of the full price for two or three years. This entitles them to upgrade to new software versions released during the contract period.
For the majority of businesses, which upgrade software every three to six years, Software Assurance works out to a hefty price increase, as there is no certainty that Microsoft will deliver a product during the contract period. Many businesses in this group have good reason not to sign up for the new licensing programme, say analysts.
"It's not possible to quantify the benefits of Software Assurance, because you don't really know what you're buying," Directions on Microsoft analyst Paul DeGroot said. "You don't know when the product is going to come out, so you can't say that, in early 2005, Longhorn — the next version of Windows — will be on our desktops. With Software Assurance, you simply cannot predict what you are going to get for that money."
In that sense, Licensing 6 could backfire on Microsoft, because companies have more incentive to make sure the company's software ships on time. So far, Microsoft's record for on-time releases isn't good, DeGroot said.
You're in trouble "if Microsoft doesn't meet the ship date, and as a consequence your Software Assurance expires", he continued. "The next time you buy this software, do you believe these guys? Are they credible? They've just taken a bunch of money, and they're not giving it back. But you got nothing for it. I think that's a terrible risk for Microsoft.".
So if customer resistance is stiff now, it could be much worse in two or three years if products such as .Net Server — already delayed by a year — or Vista, ship late. In the past, customers accepted delays in expectation of getting a more stable product, but that, too, could change, he said.
"Ironically, customers' attitude may change: Ship, ship, ship that sucker on time, and I don't care whether it works or not," he said. "I paid for you to hit that date. Microsoft wins either way, whether you buy Software Assurance or not. Their revenues go up. You can pay more for your upgrade, but less than full price — or you can pay full price later on."