CRN Interview: Microsoft's Margo Day Sounds Off On Software Licensing

Margo Day, vice president of the U.S. Partner Group at Microsoft, talks about Windows Vista and Office 2007 licensing, Software Assurance and other licensing issues in an interview with Editor Heather Clancy and News Editor Steven Burke. Here is an excerpt of their discussion.

CRN: What is Microsoft doing to make sure partners are ready to go and understand the licensing implications of Windows Vista and Office enterprise licensing for their clients?

DAY: Let me actually address that a little more broadly with respect to Software Assurance. There is going to be the same kind of training needed from Office 2003 to Office 2007. Part of the multimillion dollars that I spend out of my own budget is to train partners on the msreadiness.com Web site that you can get to from Microsoft.com.

I spend a lot of time actually training partners on licensing readiness so that they are well-equipped to have those good discussions with their customers. So there is a lot of training that is available both in a learning model, which is essentially on-demand where they can get trained anytime they want, or through a Webcast.

We post that Webcast content so people can get at it, and on the Microsoft site we have a licensing site. We are being very explicit about what the requirements are so partners can always go to the licensing site.

They can also call our partner resource desk, which is a service we have for certified partners and above. It is an 800 number [800-426-9400], and the partner resource desk will answer any questions they have.

CRN: What is your advice to partners who feel the licensing is too darn confusing for them and their customers?

DAY: At the end of the day, customers want flexibility. So you sometimes trade off complexity for flexibility. If we had simplified licensing, then everybody would complain that it is not flexible enough to meet their business needs. So we have actually opted for flexibility to make sure that our licensing addresses our customers’ needs. But it does inherently have some underlying complexity. There is no doubt about it. Which is why, then, we spend a bunch of resources at Microsoft proactively and reactively equipping the partners to be able to have that conversation.

CRN: It seems like there is a drive on the licensing front to have a customer pick a subscription plan lock, stock and barrel vs. the old world you could buy piecemeal. Is that true, and what is the benefit for the VAR and the customer?

DAY: There is a lot of value for the customer to be in an annuity relationship with Microsoft. Part of Software Assurance, granted, gives you the upgrade rights to the next version. So essentially it is a way for you to manage your IT costs. What we do more than that with Software Assurance is include training vouchers as part of the package. So the customer not only acquires the licenses, but they also have a way to get trained. Because if they are trained, they will end up deploying it and using it and getting value out of the license. The training vouchers can be used at our certified partner licensing channel. So we are driving customers to go to our channel partners to essentially get the training they need.

We announced back in September and are going live on March 13 with some new Software Assurance benefits that are part of the overall program. Depending on the level of Software Assurance, you get things like 24x7 technical support, something that customers have been asking us about for years. Per the SMB customer information-worker discussion sessions, as part of Software Assurance we'll fund one to three days of consulting for our partners to go in and talk to SMB customers about how they might want to apply the Office licenses they just bought, as an example. In the enterprise space, we have up to 10 days of desktop deployment services that will be available as part of Software Assurance overall.

CRN: How big of an opportunity is there with licensing for Office 2007 and Vista?

DAY: If you think about the SMB market, a fairly large percentage of those customers are on Office 2000 and Windows 2000. They never upgraded to the 2003 platform. From their point of view, what they had was good enough. It was stable, and it was good enough. We actually think there is a lot of benefit for them to move to 2003. But the reality is that a number of customers won't. They'll wait for 2007. Now what you have got is a very large installed base of customers that would be two versions back. For example, with Exchange, there is still 14 percent of our [installed] base on Exchange 5.5. So there is a tremendous opportunity in taking those Exchange 5.5 customers to 2003, at minimum. And then if they have Software Assurance, when we release the new version of Exchange, they will have the right to do that upgrade. It is a very significant opportunity for us in the SMB space. The other thing is that there are going to be customers that don't want to be in an annuity relationship. That is the reality, and that is fine. So we will continue to make sure that partners are clear on our license-only options, what customers get and what they don't get so customers have got the right flexibility of choice.

The drivers behind Open Value, which is a licensing mechanism for the SMB marketplace, are, ‘Hey, Microsoft, I really want to be in an annuity relationship. I really do, but I have to manage my cash flow.’ So for us, a licensing mechanism to allow a customer to spread their payments out over three years is a good thing.

CRN: Does this set the wheels in motion for the work you are doing on software as a service?

DAY: We are still in the process of trying to figure all of this out and what the overall channel models are and where opportunities will open up to allow partners to extend our platform.

CRN: Who is most responsive to the Software Assurance message?

DAY: In the enterprise it resonates the best. In terms of overall annuity penetration, the numbers are north of 70 percent or 80 percent in the enterprise. In the upper part of the midmarket space, where you have IT management, they either have a VP of IT or a CIO and there is some structure around IT management. So to get on an annuity relationship makes sense because it is a way for them to manage their IT costs over a multiyear period.

Everybody is cash-flow conscious, but cash flow becomes higher on the prioritization stack [for smaller companies] than it does for some of the larger companies. What customers are trying to weigh is their cash-flow options on, ‘Do I try to essentially buy today and secure upgrade rights later through an annuity relationship, or do I just buy the license today--which is less expensive--and wait and see what is going to come out and make that IT spend choice?’ The deeper you go down into the market, the more that cash-flow consideration becomes big. And that is part of the dynamic that we tried to solve with Software Assurance to help alleviate the cash-flow question and allow customers to step back and make good, longer-term business decisions.

CRN: What percentage of the companies that have bought Software Assurance and Enterprise Agreements never deploy because of the high cost of making the move with the services cost?

DAY: In the enterprise, we have had a very big focus on deployment for the last two years, so much so that we invested in desktop deployment people in the organization to go work with customers to help them work through deploying the latest version of Windows XP and Office. We have been very pleased with the percentage growth we have seen in customers actually deploying the latest versions of our technology. Then in the midmarket space, we have had along various times in our lifecycle rebates where we have tied the rebate to deployment services for our partners. We will continue to do things like that. That is why some of these Software Assurance benefits are so good, because there are some deployment services that the customer has already paid for.