Channel Reports Rush To Microsoft License Deals As Midnight Deadline Looms

Microsoft

While Microsoft is said to have formed an internal group to explore licensing changes in the future, the Licensing 6.0 deadline of July 31--and the company's new licensing policies--are set to go into effect in less than 24 hours.

In the midst of a severe economic downturn in the IT industry, and a typical business lull in the dog days of summer, the Licensing 6.0 cutoff date is welcomed by Microsoft's harried, but content channel partners.

Enterprise software advisor ASAP Software and distributor Synnex are among many in the channel experiencing a flood of business as the clock winds down. ASAP Software is having a blockbuster month and has been handling customer calls and working on contracts until midnight every night this week, executives said.

In some cases, customers have flown in to the company's Buffalo Grove, Ill., headquarters to ensure that the paperwork and processing of their deals make it to the Reno, Nev.-based Microsoft Licensing Inc. by the deadline. Most of the business is in the form of Upgrade Advantage deals, not Licensing 6.0 contracts per se, officials said. That contract secures the customer's right to take advantage of Upgrade Advantage discount rates and qualify for Licensing 6.0 in the future.

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"We've seen a huge surge. We're seeing big numbers like we'd see in a quarter end period, not in an off month like July," said Harry Zoberman, senior vice president of marketing and operations at ASAP Software, noting that an "unprecedented" number of Microsoft license contracts have been signed.

"The deadline is pulling [in an abnormal amount of business, and because of the size of the volume, we are seeing bigger numbers," Zoberman said. "We're seeing signature processes expedited everywhere. Customers are rising to the occasion because, after today, the world changes for them and their cost to get current and stay current will be radically different. For a July, it's a welcome frenzy in the overall economic picture."

One executive at License Online, a subsidiary of Synnex, is swamped, with the Licensing 6.0 deadline hitting on the same day as her last day on the job--July 31. Synnex has 300 salespeople in the field closing deals, and License Online personnel have been handling non-stop calls on Open License deals.

"The phones are ringing off the hook and have been all week," said Sharon Erdman, Bellevue, Wash.-based director of marketing for License Online, which was recently acquired by distributor Synnex and is being moved to Greenville, SC. "There are many last-minute orders, even into the six figures, for Microsoft licenses. We're going to break records for orders closed this month."

Microsoft saw its unearned revenue increase by $2 billion to a total of $7.7 billion during its 2002 fiscal year ended June 30, a 38 percent increase in unearned revenue from March through June 2002, due to the looming Licensing 6.0 deadline. And while the licensing plan will likely pad unearned revenue through 2003, Microsoft's finance officer warned investors and analysts not to expect a boom like that to be repeated anytime in the future.

Channel partners say the Licensing 6.0 deadline has real teeth and that customers must have their paperwork signed and processed and their checks in by end of day. While Microsoft has been giving reluctant customers financial incentives, including special financing and rebate offers, to lure them in, version 5.0 benefits--such as access to special upgrade discounts--will not be extended past the July 31 deadline.

Microsoft, aware of customer and partner discord over Licensing 6.0, is privately reviewing Licensing 6.0. Although no changes will be made by the deadline, the software giant has formed a Licensing Rationalization Committee to consider potential changes in the future, sources close to Microsoft said.

Some resellers claim the new Software Assurance plan--which will replace Upgrade Advantage as of midnight--will push more of the SMB crowd closer to Microsoft and away from partners for software sales.

"Microsoft is getting in the way of SMB dealers' relationships with their clients because of their new licensing systems," said Stephen Allen, president of New York-based solution provider Integrated Technology Systems. "The clients are mostly dealing with Microsoft directly, and there's very, very little money for dealers once clients license themselves directly with software assurance programs and other upgrade guarantee programs with Microsoft. So naturally, Microsoft's new product offering, if you will, which starts tomorrow, is probably going to bring a lot more customers directly to Microsoft, even in my space of $50,000 sales."