The Incredible Shrinking Volume License
Not that execs will say so publicly. The official word from CFO John Connors on Microsoft first quarter earnings call was that customers are deferring decisions on re-upping their Enterprise Agreements (EAs) but for its full fiscal 2005, Microsoft expects 65 to 75 percent to do so. That's the traditional renewal rate, he said.
But word of deferrals and delays, as well as anecdotal data about customers going for more "transactional" rather than volume deals, unsettles folks. Customers increasingly want to buy just what they will use and install, not a lot of shelfware, many partners say. That is why Microsoft hopes to arm large account resellers (LARs) and other partners to better demonstrate why the latest-and-greatest Microsoft products bring real value. Un-deployed software is a time bomb, especially in this era of constrained IT budgets.
ePartners, a Dallas-based Microsoft solution provider, hopes to parlay its expertise in Microsoft CRM and other business applications to great effect here.
"We believe as an integrator on the business apps side, we can come in and show companies what they can do with the 900 copies of SharePoint they've already paid for. For X dollars more, we can deploy MS-CRM and light up that whole Microsoft investment," said ePartners CEO Dan Duffy.
In some cases there may be no incremental software charge at all. He cited one company that has 2,000 idle SharePoint seats. It asked ePartners to show it how to leverage the portal across the entire company. "That requires no additional product investment other than the EA," he said.
But, integrators typically bill for their hard work and to customers, money is money. That scenario also presumes that people want the full Microsoft stack, and that presumption itself may be, well presumptuous.
Naysayers maintain that Microsoft's perceived high handedness has pushed customers to give StarOffice, OpenOffice, Linux, you name it, a real examination before making a new volume decision. Or maybe encourages them to stick with the Office 2000 or Office XP they've had installed for years. After all, many users think, we don't use 80 percent of the features we already have, why pay for more features we don't need or use?
Goldman Sachs analyst Rick Sherlund told CRN's Paula Rooney that it is clear volume buyers are pushing back.
"They say they'll sign it [the contract] but they're in no hurry and they'll squeeze Microsoft more," he said. The street didn't like hearing about extensions, but was comforted by the cool $1 billion in unbilled revenue Microsoft reported for the first quarter, ended September 30. That figure, says Sherlund, shows that the annuity revenue stream going forward is secure.
Connors admitted that renewal rates in the early second quarter were "slower than we expected." But he expected the pace to pick up in subsequent quarters, as customers finish evaluations.
Microsoft is doing what it can to soothe customer concerns over pricing. Most big customers saw EA 6.0 more as a price hike than anything else. That, along with the slips of key promised technologies like Longhorn and its component pieces, make them fundamentally question just exactly what they'll get over the usual three-year life of an EA.
Resellers say Microsoft is letting customers craft custom EAs, buying plain Windows client access license (CAL) rather than the whole core CAL, which includes Windows itself, plus Exchange Server, SharePoint Server CALs. They say BizTalk is becoming a de facto freebie in many volume deals.
There are some on-the-books tweaks as well. Last February, the company said it would make Office 2003 Solution Accelerators available to customers outside its Software Assurance upgrade and maintenance plans.
Some say Microsoft is between a rock and a hard place. A few years back it started negotiating price on volume deals itself because the various LARs were bashing each others brains in, discounting the software. An unintended consequence of Microsoft's move, may be even more ferocious discounting.
"At least with LARs in there, there was only so low you could go. At a certain point you couldn't cut price any more, there was a floor," said one former LAR executive. With the pressure on the Microsoft field to close deals, discounting got even nuttier, channel sources say.
"Microsoft would not have the problem they have if they hadn't done the new licensing and if they hadn't devalued the distribution channel of the LAR. If LARs had 10 to 20 point margin opportunity, things would be fine," said one solution provider.
Of course, with corporate (well, all) customers clamoring for the lowest possible price, that margin would have to come from somewhere.