Microsoft Execs Paint Rosy Volume Licensing Picture

Last week at Microsoft's annual Financial Analyst Meeting, Jeff Raikes, president of Microsoft's Business Division, said Enterprise Agreement (EA) renewals contributed to a 13 percent year-on-year revenue increase during the vendor's most recent quarter.

The Enterprise Agreement, a volume licensing program for organizations with 250 or more desktop PCs, includes Software Assurance, a program that lets customers upgrade to new software versions released during the term of their contract with Microsoft, and spread payments over a three-year period.

Raikes was quick to dispel the notion that this growth is just a reflection of customers wanting to be eligible for the releases earlier this year of Windows Vista and Office 2007. Instead, he chalked it up to customers' pervasive optimism over the future roadmap for these and other Microsoft releases.

"We could have easily thought that customers were excited about their Enterprise agreement covering Vista and 2007 Office System in Exchange and said, 'OK, I'm licensed and I don't need to renew.' In fact, we saw the opposite," said Raikes.

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Microsoft chief operating officer Kevin Turner was similarly upbeat about the outlook for volume licensing. "New sales and renewals [are] growing at the best rate we've seen in many, many years," spurred by interest in Vista Enterprise Edition and Microsoft's Desktop Optimization Pack, said Turner.

Both Desktop Optimization Pack, an amalgam of technologies from recent Microsoft acquisitions, and Vista Enterprise Edition are available only through volume license agreements.

But despite the rosy picture painted by Microsoft executives, sources told CMP Channel that Microsoft's volume licensing programs are set up in a way that makes it more costly for customers not to renew their agreements.

One East Coast licensing expert said many Microsoft customers are renewing only because the alternative -- buying separate licenses -- is far more expensive.

"People aren't crazy about volume licensing, but they are reluctantly renewing their agreements because they realize they don't have much of a choice," said Scott Rosenberg, founder and CEO of Miro Consulting, Fords, N.J.

Paul DeGroot, an analyst with Directions On Microsoft, says it's likely that Enterprise Agreement renewals were strong in the second half of last year because customers wanted to be eligible for Vista and Office 2007 upgrades.

It's also much cheaper for organizations to re-up on an Enterprise Agreement than it is for them to cancel and then renew down the road, said DeGroot. "If you drop your EA and then pick it up later, Microsoft treats this as a new EA, and could make you pay for the licenses all over again," he said.

For many organizations, the main benefit to renewing Enterprise Agreements is to ensure that all software licenses are legal in Microsoft's eyes, according to DeGroot.

"If you drop your EA, you need to have processes in place to make sure that you can track each software license you buy through all channels, and that you know precisely which machine that license was applied to," said DeGroot.

"If they want to get off the EA treadmill, [organizations are] going to have to implement processes and systems that provide rigorous license management, and not many of them have bothered to do that," added DeGroot.

This week, Microsoft continued to beat the volume licensing drum. In a Q&A posted Monday on a corporate website, Joe Matz, corporate vice president of worldwide licensing and pricing at Microsoft, said that Enterprise Agreement renewals are nearing an all-time high, due in part to the value customers see in Software Assurance.

But a report issued last month by Forrester noted that uncertainty over Microsoft product release timetables is making it difficult for IT procurement and sourcing professionals to justify a three-year Software Assurance renewal.

Microsoft is so entrenched on the desktop that it's easier for most customers to just pay up and move on than it is to consider the alternatives, but in the long term, Microsoft will have to get handle on the spiraling complexity of its licensing terms, DeGroot said.

"I don't think Microsoft can ignore the grousing about how they license their software to corporations. It's exceedingly complex, and in spite of Microsoft's claims that they're 'simplifying' licensing, they're making it more complex all the time." said DeGroot.