Under the new Software Assurance (SA) system, companies would pay an annual fee of 25 percent of a server license and 29 percent of a desktop license. In exchange, the customer gets unlimited free upgrades of that particular operating system or application as Microsoft releases new versions.
At the time, it was a tough sell. To many it looked like more of a Revenue Assurance program to guarantee Microsoft a steady flow of income, rather than anything that would benefit purchasers. It meant that customers would start incrementally paying for future upgrades years before Microsoft released the products. In three-and-a-half years, they would have paid the equivalent of a full license cost for a new desktop version, and four years for a server product.
“Buyers should purchase SA if they plan to upgrade to a new version that is released within 3.5 years for desktop applications and operating systems, or four years for server software,” said Gartner Inc. research director Jonathan Mein. “Microsoft needs a product release cycle that meets these periods.”
But there was no promise that Microsoft would come up with a new product in that time period. If not, then customers paid more than if they had waited for the new release and bought it outright. And that is more or less what happened. The first batch of SA contracts are now coming up for renewal, without Redmond coming out with a significant software release.
In March, Microsoft announced a delay in the release of the next version of SQL server (Yukon) till the first half of 2005. News followed that Longhorn, the replacement for Windows XP, wouldn’t be out till the first half of 2006, four-and-a-half years after the release of XP.
In order to continue the SA program, and without alienating its customers, Microsoft needed to thoroughly revamp it. One option was to release incremental software updates with greater frequency so that updates were guaranteed to occur during the contract period. The other was to stick with the planned releases, but increase the value of SA. In September 2003, therefore, Microsoft released a new SA program with a load of attractive features.
As with the earlier version, the main component is the ability to upgrade the software. But there are number of other options to make it more appealing. Among these are:
“The suite of benefits in Software Assurance is broad enough and flexible enough to appeal to companies of all sizes; however, because the needs of each organization are different, customers should evaluate the benefits available to them and craft an individual program that best suits their needs,” said Julie Giera, vice president Forrester Research Inc. “Not all customers will use all features of SA.”
The Billion-Dollar Question
For the most part, these features have little additional cost for Microsoft, but they do help the buyer to better support the Microsoft products they purchase. From Microsoft’s viewpoint, they help to build brand loyalty.
“It remains to be seen whether customers feel the enhancements are compelling enough to spend the time and resources to deploy them,” said Giera. “It also remains to be seen whether Microsoft has done enough with Software Assurance to compel customers to renew the coverage in the next six months when many of these contracts expire.”
Take the example of the eLearning courses. There is minimal cost involved in sending out an additional disk containing a new course. But, if the customer’s employees use these courses, it cuts down support costs and it makes it less attractive for the company to start looking at Linux or StarOffice, since the employees are trained in the use of Windows and Microsoft Office. The same applies to training vouchers for the IT staff. If they are better trained, they will be more satisfied with the Microsoft products and less likely to look at changing platforms.
“The stakes are high. Microsoft has $1.1 billion in Upgrade Advantage contracts that expire this year and millions more in Software Assurance revenues that are up for renewal in 2004,” Giera continues. “There is a lot of revenue riding on the answers to these questions.”