Foley on Microsoft

Feeling Assured About Software Assurance?

Analysts say customers are dumping it, Microsoft says they're signing up in droves. Is the truth somewhere in the middle?

Software Assurance (SA), Microsoft's annuity-licensing plan, is nothing if not controversial. I've never heard a Microsoft customer voluntarily praise anything about the program -- other than it allows them to spread out software payments over multiple years.

A recent study by Forrester Research Inc. found that customers feel SA offers them less bang for their collective buck than they believed previously. High cost, coupled with unclear roadmaps of deliverables, is making for some less-than-content SA customers, the Cambridge, Mass.-based researcher claims.

Flying into the teeth of this data, Microsoft released some very upbeat-sounding SA statistics at the end of its fiscal 2007 on June 30. Among the new numbers from Redmond's SA watchers:

  • Enterprise Agreement volume-license renewal rates (which exceeded the high end of Microsoft's historic 66 percent to 75 percent renewal range) and multi-year license sales accounted for 40 percent of the company's revenues.
  • The Microsoft Desktop Optimization Pack (an SA "benefit") has been the fastest-selling Volume Licensing product ever, reaching the two-million-license mark after just six months.

So which is it? Is SA the best thing to ever happen to Microsoft customers? Or are they avoiding it like the plague?

"It's hard to figure out what the actual numbers are," acknowledges Microsoft licensing expert Scott Braden. "My take is that most customers buy Enterprise Agreements, which include SA. So that makes the SA numbers look good when Microsoft reports."

Ania Levy, president of Levy LeGette LLC, an IT deal-structuring service provider, has similar qualms about reading too much into the numbers. Levy notes that if 75 percent of some unknown number of Microsoft customers are renewing their Enterprise Agreements, it means 25 percent aren't. Given the size of Microsoft's enterprise user base, that's a significant number.

Microsoft has been trying to build popular support for its SA program since it was launched in 2001. Its current strategy is to offer SA customers incentives, in the form of products and technologies not available to non-SA customers, in order to attract and maintain its SA base. The aforementioned Microsoft Desktop Optimization Pack (MDOP) -- which includes application virtualization, plus desktop monitoring and management tools -- is an example of an SA-only offering.

While Microsoft hasn't gone so far as to make SA mandatory, analysts with Gartner Inc. predicted recently that Microsoft might do so -- possibly by 2010, when Windows 7 is set to ship.

"Many customers are afraid not to renew," Levy says. If they don't, they might "suffer from Microsoft price hikes, totaling as much as hundreds of percentage points for a product," she says. (Levy speaks from years of experience, having negotiated numerous licensing deals between Fortune-class companies and Microsoft and other tech vendors.) Some customers also are fearful that "Microsoft might punish them [for not participating], like they do their partners," Levy claims.

The vast majority of Microsoft customers signing volume-license agreements often don't realize the choices available to them, Braden says. For example, Enterprise Agreement licensees have the option of removing SA from products where they don't need it. In other words, SA doesn't have to be a blanket purchase, says Braden.

"Of the few that do [due] diligence, most of them end up with SA on only a few products," Braden says. "Most customers will agree that for many products, they didn't get the value they expected."

Braden's main message to his clients: When it comes to SA, "you shouldn't make decisions based on what everyone else is doing -- just like your Mom told you. Do your own analysis and understand your own reasons."

What's your SA experience? Have you found any silver linings in the Microsoft SA cloud? Let me know at mjfoley@redmondmag.com.

About the Author

Mary Jo Foley is editor of the ZDNet "All About Microsoft" blog and has been covering Microsoft for about two decades. She has a new book out, Microsoft 2.0 (John Wiley & Sons, May 2008), about what's next for Microsoft in the post-Gates era.

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