A new licensing program being put in place by Microsoft will force the majority of its business customers to either upgrade to Office XP before October 1 or pay a heftier purchase price later, analysts say.
The US software giant on Thursday revamped its licensing program - in the process raising fees anywhere from 33 percent to 107 percent for the majority of customers, according to Gartner.
As part of the revamp, Microsoft eliminated the most popular licensing plan for upgrading to new versions of its software, replacing it with a new program called Software Assurance.
The new program guarantees customers access to the latest versions of Microsoft's business software, including Office and Windows.
But to participate in the program - to take advantage of discounted upgrade prices - businesses must be running what Microsoft terms the "current" version of its software.
For Office, that is version XP, which the company won't formally launch until May 31. If customers upgrade to Office XP, they are eligible to receive future versions of the software at a reduced price.
However, if customers don't upgrade all of their machines to Office XP before an October 1 deadline, they in essence have to buy Office licences at full price, as if they were new customers.
"You're being forced to do an upgrade to get into (Software Assurance) - or you can just wait, and at some point in the future you can rebuy the licence at full price," said Gartner analyst Alvin Park.
The new rules boil down to a huge spike in revenue for Microsoft as companies rush to upgrade to Office XP before October 1.
For customers, the new program amounts to a major price increase, just when Microsoft needs it most.
Software Assurance means that overall, Microsoft's US customers will spend an additional US$1.7 billion because of the program, according to Guernsey Research.
The market researcher calculates US businesses will spend US$5.4 billion spent on upgrades, rather than US$3.7 billion under the old upgrade program.
Worldwide, the change means Microsoft will pull in an extra US$3.6 billion in revenue the first year the program is in place - or about 15 percent of the company's fiscal 2000 revenue, according to Guernsey Research.
Analysts said the move also indicates concern within Microsoft that licence revenue is headed for a dip.
"I have never seen a price increase like this from Microsoft," said Guernsey Research analyst Chris LeTocq.
"With the upgrade leverage they're putting in place here, internally Microsoft has to be forecasting lower revenue for the future. Given the lengthening cycle of upgrades, this would seem to make sense."
"Essentially, what Microsoft is doing is bringing forward revenue from two years out," LeTocq said.
In Microsoft's fiscal 2001 third quarter, Office accounted for 37 percent of revenue - more than any other product. That is a decline from 40 percent in the second quarter and about 46 percent during fiscal 2000.
The upgrade situation applies to all Microsoft products, not just Office. For example, businesses using Windows versions before 2000 or XP before the deadline would have to upgrade to one or the other to join Software Assurance.
Gartner estimates that more than 80 percent of Microsoft customers will have to decide whether to upgrade to Office XP before the deadline.
Guernsey Research estimates that there are about 25 million business users on Office 2000, 40 million on Office 97 and 7 million on Office 95.
The figures do not include consumers, which typically buy at retail rather than through license agreements.
Software Assurance, which replaces version upgrades and the Upgrade Advantage maintenance program, already represented as much as a 107 percent price increase for Microsoft customers, Park said.
But to avoid an even greater increase - paying full price instead of discounted upgrades - Microsoft customers must have Office XP first.
LeTocq agreed that Microsoft is forcing an upgrade.
"If you want to participate in their Software Assurance program, that's exactly what it is," he said.
Microsoft spokesman Dan Leach rebuffed that contention. He did, however, acknowledge that people must upgrade to the current version of Microsoft products to be eligible for Software Advantage.
When asked if XP is the current version for Office, he responded, "That is correct." But Leach emphasised that "customers have a number of choices, and that's why the announcement is so far in advance."
While I agree with most of the comments "anti-MS" as they are. To say MS Word is GARBAGE without explaining why you think so isn't convincing.