Software Assurance Deals Play Through 1Q

Microsoft has another fiscal quarter to gets its Upgrade Advantage (UA) customers converted to Software Assurance (SA), but ongoing product delays and a wavering product road map are posing some problems, sources say.

The company's Upgrade Advantage program ended June 30 but the bulk of customers have until September to make a renewal decision, a Microsoft spokesman confirmed. According to the SA renewal rules, customers have a 90-day extension to renew after their UA contract expires--and many are taking advantage of it.

As Microsoft reports its fourth quarter and year-end earnings this week, licensing experts are expecting an abundance of licensing activity this quarter with the SA extension ending. According to Goldman Sachs, about $2.2 billion worth of Upgrade Advantage is up for renewal in Microsoft's 4Q and 2005 1Q. Assurance renewals look strong but some say the company's product delay history makes it harder to sell SAs.

Microsoft promised to release Windows XP Service Pack 2 to manufacturing in August and said it had plans for a Windows Server upgrade due in 2005 code-named R2 with robust network access protection (NAP) network security technology. But Microsoft has delayed finishing its XP security Service Pack and may delay Windows Server 2003 Service Pack 1 until 2005. Toronto-based Softchoice has signed up 20 percent of its UA customers to SA but acknowledges that product delays and uncertainty are causing some customers to choose to sign licenses only without upgrade maintenance.

"The predictability of the next platform is hard, and that's the gamble customers face, but the leverage is now in the customers' hands," said Nick Foster, vice president of marketing at Softchoice.

Foster said Microsoft has set expectations that licensing partners should renew 66 percent of revenue of existing Select contracts and 50 percent of revenues from existing Open contracts. Publicly, Microsoft CFO John Connors said he expects between 10 percent and 30 percent of UAs to convert to SA.

Jeff Raikes, group vice president of Information Workers, conceded that many customers are choosing to sign transaction licenses and not SA. That's OK with him. "I think the transactional customers are pretty excited about Office 2003, meaning customers said, 'I won't do an [Enterprise Agreement], but I like Office 2003 and will go ahead with a Select license transaction on that."

BARBARA DARROW contributed to this story.