Redmond Negotiator

SA 'Reparations' vs 'Incentives': What's in a Name?

The real scoop on how Microsoft is handling accounts burned by Software Assurance, and what you can do about it.

• By Scott Braden
• 08/24/2006

Many Microsoft customers who bought Software Assurance several years ago did so in the hope and expectation that Microsoft would release new versions of Office and Windows during the term of their SA coverage, making them entitled to the upgrades. Alas, Microsoft's release schedule kept slipping, and now many of those SA subscriptions have expired (or will soon), leaving the customers with no upgrades to show for their investment.

So naturally, many customers are asking Microsoft for some price concessions or other forms of compensation, since the expected upgrades still haven't been released. Microsoft is squirming and wriggling and making carefully worded statements that, basically, say it isn't going to happen, and any news stories to the contrary are just confused.

Here's what's really happening:

• Microsoft usually comes up with incentives and promotional programs to speed up adoption of any new product or upgrade that's released. This is business as usual, so you can expect to see more news in the next few months about Office and Vista upgrade promotions and programs.
• Microsoft simply can't afford to announce to the world that, “Hey, we're sorry you gambled on SA and lost, so we'll cut your prices for the upgrades you missed out on.” Not only would this cost a big chunk of revenue, it would also set a very bad precedent for the next time Microsoft misses a targeted ship date. Both of these outcomes are totally unacceptable to Microsoft's shareholders.
• Even so, everything is negotiable. Customers who are prepared, savvy, tough and patient will be able to extract concessions in exchange for renewing or continuing Software Assurance.

So let's focus on that the third item: The main thing to keep in mind is that Microsoft values a dollar of Software Assurance revenue more highly than a dollar of “license-only” revenue. The reason, again, is Microsoft shareholders -- especially the big financial companies and mutual funds -- prefer steady, predictable income versus the jumpy, product release-based income that has traditionally driven Microsoft's earnings.

So what does this mean to you if you're one of the customers who have bought SA over the past few years, and have received no upgrades from Microsoft before your SA expired?

First, you won't be getting any “refund” or “reparation” checks, so don't get your hopes up. Instead, you should plan on using variations of the three alternatives below as leverage to get a better deal from Microsoft on your future purchases of licenses and SA -- and make the discounts or concessions significant enough to take away the sting from the previous SA that didn't pay off.

1. Stay put. Stop buying SA for Office and Windows. Let your current subscriptions lapse, and let your Microsoft rep know that you won't be buying any licenses to get the new versions for quite a while.
2. Negotiate hard, using well-thought-out analysis of costs, to renew your SA at a deeply discounted price, in order to justify the expense that's already gone to no benefit. Be sure to take advantage of the various promotions and incentives that will be offered, in addition to your price cuts.
3. Seriously look into alternative products -- by serious I mean a real pilot program using Microsoft competitors such as Apple, Linux, StarOffice and the other competitors.

OK, now stop laughing…This is gut-check time: If you're not in enough pain to really consider alternatives, then you're not really in much pain at all, and you should probably just continue writing large checks to Microsoft without expecting any value in return.

Lately, when a client tells me that high Microsoft licensing costs are causing a lot of pain and frustration, I always ask, “What's the dollar value of that?”

So, how much heartburn do you really feel over Microsoft costs? How hard are you willing to work to make realistic alternatives? Only after you've answered these questions will you be ready to renegotiate with Microsoft.