Forced upgrades
The changes affect the most popular type of Microsoft's licensing programs, Select Agreements. Under the old terms, most companies could purchase upgrades one of two ways: through a two-year maintenance contract called a Upgrade Advantage, or by buying one of four common version upgrades--the most popular option. Microsoft eliminated both plans and replaced them with a new program called Software Assurance.
"They've eliminated the most popular way that midsize organisations upgrade their software and raised the upgrade price in the process," MacDonald said.
Gartner estimates that medium-sized businesses upgrading software every three years will pay anywhere from 33 percent to 77 percent more under the new plan than they did with the old. Four-year upgrades would cost 68 percent to 107 percent more.
"We went through a typical organisation with 5,000 desktops that runs Microsoft Office and uses version upgrades," MacDonald said. "The increase in cost with the elimination of version upgrades ranges from US$900,000 to $1.6 million."
Companies that upgrade software every two years, however, would see an annual decrease of between 2 percent and 19 percent, according to Guernsey Research.
"The message here is if you're a good Microsoft customer, you will be rewarded, but anyone pushing off upgrades will pay more," LeTocq said.
Companies upgrading every three years would pay 22 percent to 47 percent more, with the increase jumping to 40 percent to 68 percent for four-year upgrades, Guernsey Research concluded.
Because small businesses "upgrade the least frequently of all, they end up paying 70 percent more per year," LeTocq said.
"I would agree that with someone who upgrades less frequently than, say, the four-year time frame, Software Assurance would result in a higher price than it is today," Henningsgaard said.
But he disagreed that this would affect the majority of Microsoft customers, arguing that most companies upgrade every 2 1/2 to 3 years. That works out to no change or a decrease for 80 percent of Microsoft customers.
"Even for the 20 percent, they have a software asset management model that is actually practical and usable compared to the current model," Henningsgaard said.
MacDonald disagreed. "Most people don't upgrade for at least every three years," he said. "For Microsoft Office, it's every four years."
Out with the old
Because the Software Assurance program costs somewhat less than the Upgrade Advantage option, Microsoft is positioning it as a better value.
"But it's all a matter of perspective," MacDonald said.
Version upgrades cost anywhere from about 59 percent to 72 percent of the full purchase price. Because of the lower fees and flexibility to upgrade when needed, these were the most common means of upgrading Microsoft software, analysts say.
Under Software Assurance, companies pay 29 percent of the licensing cost for desktop products and 25 percent for server software per year. If Microsoft's full price for Office upgrades was $100 per copy, customers would pay $29 a year for the right to upgrade. Over the two years of the contract, that works out to as much as 58 percent of the full price vs. as much as 80 percent under Upgrade Advantage.
But over three years, the company would pay 72 percent of the full purchase price for the right to upgrade. The majority of companies, though, wouldn't upgrade for four years, both MacDonald and LeTocq said. For four years, the cost would be 116 percent of the full purchase price, making it cheaper to skip the upgrade program altogether.
MacDonald slammed the changes as a "forced upgrade program." He also noted that even on its merits, the Software Assurance program is no deal.
"The typical industry standard is 17 to 22 percent of the licence cost for this kind of thing," he said. "Microsoft is still way high and doesn't offer technical support the same way as the majority of the other software vendors."
Henningsgaard disagreed that Microsoft's Software Assurance program costs more than competing programs. "Lotus, their rates are on the order of 25 percent," he said. "Computer Associates is between 25 and 30 percent. Oracle is actually lower than us--between 15 and 20 percent. So there's a range, and we're in that range.
