SA Exposed

Customers have few kind words for Microsoft's Software Assurance, and even fewer good choices for upgrades.

In early 2001, Microsoft announced Software Assurance. Four years later, you can still hear the howls of angry customers.

Software Assurance replaces the old Upgrade Advantage, a maintenance program that was designed to keep updated products in users' hands—a predecessor of sorts to the Software Assurance (SA) program. Critics believe SA was largely designed to please Microsoft accountants and Wall Street, because each subscription guarantees Redmond three years of consistent revenue. It has created a furor among users because of its costs and delayed releases of product upgrades, yet it can and does make sense for some organizations.

Here's how SA works: After buying a Microsoft software package, you pay a percentage of the cost every year for the right to upgrade to a new version, along with benefits like payment scheduling, additional access to technical support, special hotfixes and more. The annual fee is 25 percent of the full retail cost for server software and 29 percent for desktop software. Those fees are quite a bit higher than the industry standard for software maintenance, which Forrester Research puts at 21 percent.

Giving the program a bit of flexibility would go a long way toward winning support throughout the user community. "My biggest complaint from customers is that in order to get on board SA, they have to purchase new licenses. Microsoft needs to come up with a way to give customers credit for these past purchases and let them convert to SA," says Brian Silles, lead trainer for Great Lakes Workforce Development, a job training and career counseling company located in Rochester, Mich.

Chris Munger

"I consider myself a Microsoft stalwart (but) the whole SA fiasco has left me feeling seriously burned and taken advantage of."

Chris Munger, Senior IT Manager, American Academy of Periodontology

Even longtime Microsoft supporters have been soured by the SA experience. "I consider myself a Microsoft stalwart—ready to defend Microsoft against those with unrealistic views of capitalism," says Chris Munger, senior IT manager for the American Academy of Periodontology. "The whole SA fiasco has left me feeling seriously burned and taken advantage of."

The Benefits Drilldown
There are benefits to purchasing Software Assurance besides the scheduled upgrade rights. They include:

Easier Budgeting and Payments: By spreading out your payments, you can free up money for other projects.

Price Breaks: Check the Microsoft Web site or get rebate details from your reseller or Microsoft rep.

Work at Home Help: Work at Home lets users install licensed Office applications on their home machines or laptops to facilitate working at home.

Special Hotfixes: SA customers get some hotfixes that aren't available to other customers.

Additional Discount Points: Each SA purchase adds points to your pool.

TechNet Online Concierge: This is a Web-based support offering with live chat, in which Microsoft techs can direct you to relevant TechNet content.

TechNet Plus: TechNet Plus includes beta software and access to Microsoft technical content.

E-Learning: SA includes access to dozens of E-learning courses aimed primarily at boosting end-user productivity. This Microsoft E-learning Library is worth about $50 a seat.

Training Vouchers: Aimed at IT pros, SA offers free courses from Microsoft Certified Technical Education Centers.

Corporate Error Reporting (CER): This tool tracks and analyzes errors, points to fixes and does regular maintenance. Here you can track how much time and money you're spending grappling with these issues.

Access to Source Code: Shops with more than 1,500 Windows PCs can access Windows source code to help build custom applications and make it easier to support software that Microsoft discontinues. Dealing with Windows source, however, is an expensive, developer-centric endeavor.

Extended Hotfix Support: Like the source code, this helps support older software.

Digital Rights Management for Word: This content protection software is offered free to SA customers.

Intelligent Message Filter (IMF) for Exchange: SA customers get extra software—in this case a Bayesian spam filter.

Windows Pre-Installation Environment (WinPE): This tool is designed to ease Windows XP deployment, including remote installation and configuration.

The Pressure's On

Many felt pressured to move to SA, despite remonstrations to the contrary from Redmond. Some customers reported everything from subtle implications to overt threats from Microsoft that failure to sign up for SA could lead to an audit, one of IT's deepest fears. "I felt pressured to purchase SA on our key products," says Chris Munger, senior IT manager for the American Academy of Periodontology. "There was rather explicit messaging at the time that purchasing upgrades when new products came out would be substantially more expensive than keeping current SA agreements in place."

Munger isn't the only one. "We were most certainly threatened with an audit by Microsoft if we did not sign up for SA," says an IT executive who asked to remain anonymous. "The company plans to drop SA this year and stay at the current software levels."

— Doug Barney

Is It Worth It?
Like it or not, Software Assurance is probably here to stay, and you need to decide whether or not to sign up—a decision that comes down to a basic cost/benefit analysis.

Two ROI calculators—one from Forrester Research, and another currently being developed by Nucleus Research—purport to be able to help you make that determination. Microsoft reps or resellers may even come armed with the Forrester calculator, but don't let them control the calculations. Make sure the model includes any variables relevant to your shop—and fully accounts for downsides like the extra costs of upgrading, the possibility that upgrades won't ship on time or that you won't need or want them.

The Forrester ROI tool focuses on risks like IT's inability to roll out new products and upgrades due to politics, tight budgets and other unpredictable factors. It assumes that SA can reduce the risks of problem rollouts and shorten deployment times. You should load in external risks like late Microsoft products, unstable releases and lack of compelling features. The problems Redmond is having with increasingly complex products like Yukon and Longhorn should convince you to factor in enough risk.

The basic idea is to determine whether the dollar value of the benefits plus the dollar value of the upgrades exceeds the cost of SA. Even if the ROI is all positive, you still have to compare this level of payback to the alternatives, like the standard Microsoft volume programs.

Once your ROI analysis is complete, you can use it as a negotiating tactic. Let's say you're leaning toward SA, but the ROI just isn't there. If you change the investment component by asking Microsoft to lower its SA costs, you'll change your payback period and annual return.

Keep ROI on Track
Upgrade rights are the real meat of the program, so you have to compare the cost of SA against the cost of not using SA. Don't fall for an overly simple ROI analysis. This is not all happening in a vacuum. "Your budget can change, and something else can come out that is better," argues Rebecca Wettemann, vice president of research for Nucleus Research. "Do some expected- and worst-case analysis."

All of the SA benefits can add up to millions for large buyers, at least according to the report, "Microsoft Licensing 6.0: Practical, Tactical Advice for Negotiating and Winning the Best Deal," from Sunbelt Software Inc. and Information Technology Intelligence Corp. (ITIC). However, only you can put a true dollar value on what SA would mean for your company.

The biggest benefits of SA are focused on support. Look at the time spent by internal IT staff, money given to Microsoft (number of support calls multiplied by price) and whatever third-party services you use. Then scrutinize how free SA support services will save money on your existing support costs.

Your upgrade strategy is another fundamental factor in the go or no-go SA decision. According to the ITIC report, upgrade cycles are typically four to six years, far longer than SA's two- to three-year terms. Shops that upgrade on a four- to six-year cycle are better off avoiding SA, unless you can clearly prove that the other benefits are worth the extra 25 percent or 29 percent a year.

The most aggressive shops upgrade frequently. In some cases, a company may be so connected to so many partners—many of whom have the latest software with the latest file formats—that staying current is a requirement. If you consistently upgrade every two to three years, then SA or an Enterprise subscription program may make sense.

Frequency of upgrades is one issue, but what if there's no compelling upgrade choice, or no business reason to upgrade? Then you've paid all that money just for the extras that come with SA, not for the upgrade. "Software has changed. The days of yearly upgrades are gone," says IT Manager Barney Lejuene.

Also keep in mind that SA demands disciplined planning for upgrades. If you don't think your firm has that kind of discipline, you won't likely get your money's worth.

Consider This When Considering SA

1. How does your technology roadmap look compared to Microsoft's release "schedule?" Is Microsoft planning to upgrade an application that you will actually want to upgrade during your SA coverage?

2. There are unwritten benefits to having a lot of SA coverage—things like better responsiveness from Microsoft's local office on tech issues, briefings and so on. Do you need to deepen your relationship with Microsoft?

3. How well do you track and manage license compliance? If you don't have a solid asset and license management system, upgrades and versions are a headache. SA makes it slightly simpler.

4. The primary SA benefits include server support and training. What price would you pay if buying separately? Are they available from other sources as a better deal?

— Scott Braden, author, Microsoft Licensing Secrets (

Bad for Small Business?
SA is aimed primarily at larger customers, so it's no surprise that most small businesses express little to no interest in SA. "SA has no merit for small businesses whatsoever," says small business Consultant Joe Hass. "Since companies like Dell will bundle and pre-install the latest version of Office with the latest version of Windows on a new PC, I believe SA actually increases the overall costs to small businesses."

Other consultants are also gun shy. "As a small business consultant, I've had some real hard times trying to explain to my customers after they bought SA why they spent all that money for nothing," says Brian Kronberg, MCSE, CNE, networking consultant, IT People Unlimited. "SA has only helped me in one case: Microsoft Project. I was able to save a lot of money getting the Project server free."

Kronberg steers his small business clients away from SA. "I've lost all respect for SA because Microsoft doesn't honor free upgrades to those who were in SA for their original release date, but not for their postponed release," he says. "Microsoft's release record shows that it's consistently missing ship dates and removing key features. Many of these features were the only reason customers wanted an upgrade."

Factoring in delays is critical to gaining an accurate view of Redmond roadmaps (see March 2005's "Microsoft Math" for more on Redmond's delivery delays). When Microsoft reps pitched SA to the AAP's Munger, he expected that upgrades would ship regularly. "Implicit in all the discussions was that Microsoft would continue rolling out at least one upgrade to their products within the SA period—maybe more than one," he says. "However, 12 to 18 months ago, Microsoft changed direction and began to roll out key business products at a much slower pace."

Ken Mallinson

"We are now running a brand new e-mail server and the upgrade cost was only for the hardware. SA worked like it should have."

Ken Mallinson, Technical Coordinator, Lincoln Office

This is a common customer theme. "When faced with the issue of purchasing SA for our Microsoft licensing, we declined. We figured that our upgrade schedule didn't fit with Microsoft's and that we'd deal with the licensing expenditure when the time came," says Paul Edwards, an IT manager with PHH Arval, a commercial fleet management company based in Mount Laurel, N.J.

While it's wise to look at SA with a critical eye, it's not all gloom and doom. "We purchased SA for our Exchange 2000 server when we bought it in July 2001 and as luck would have it, Exchange 2003 came out before the end of that SA agreement. We are now running a brand new e-mail server and the upgrade cost was only for the hardware. SA worked like it should have," explains Ken Mallinson, technical coordinator for Lincoln Office, a furniture company based in Morton, Ill.

Alternatives to SA?
While there are few non-SA Microsoft upgrade options available, there are alternatives—such as buying retail. "SA is a pure waste of money. I can buy retail upgrade versions at half the cost of Volume Licensing, and without the added cost of SA," says Eric Kirkpatrick, manager of IS for Diamond Tours.

Others buy new software only when they get new hardware. "Having experienced the SA mess, I don't see that it is ever a good thing. Most companies don't upgrade software or hardware every three years, so instead of buying SA, just buy the OS license with the PCs that you buy when you buy them, and upgrade all other software when needed," says one former SA customer who asked not to be identified. "Even with all of the bells and whistles, [SA] is not cost justifiable."

Microsoft's subscription licenses are another alternative for those who upgrade frequently. They come with a three-year term just like SA that includes upgrade rights. An Enterprise Agreement (EA) subscription (which operates like a lease) is 15 percent less than an outright EA purchase, which itself is already 40 percent to 60 percent less than full retail. In some cases, there can also be decent tax breaks by procuring your software this way.

At the end of the three-year term, you can buy perpetual rights to the software by paying the annual license cost one last time, plus an additional 50 percent of the license cost. Again, this functions much like closing out a lease. You get discounts, Microsoft gets recurring revenue. At the end of the three-year cycle, you have to renew or buy out the license—otherwise the software ceases to function.

Some believe subscription plans are the future, if the pricing can be straightened out. "Software as a subscription or a service would have a much higher utilization if not for pricing maladies that plague the market," says Robert T. Fix, network administrator for Midwest Sign & Screen in St. Paul, Minn.

9 Tips and Tricks for Making the SA Decision

1. Analyze all of your spending with Redmond and compare that to the cost of moving to SA.

2. Do your own ROI analysis. Don't allow vendors to conduct it for you.

3. Benchmark all your options.

4. Keep in mind the little—but important—details like the fact that the standard edition SA does not let you move to an Enterprise or Pro Edition. Instead, you may have to buy it all over again to move to a higher version. In some cases, Redmond will have a step-up offering and will negotiate exceptions with key customers.

5. Understand the time value of money. With SA, you pay up front and lock in the long-term upgrade price. But what if you invested that money or used it for something else? Research firm Directions on Microsoft points out that over the course of three years, money borrowed at 5 percent would equal paying the full amount for a new piece of software. For high-end contracts, Microsoft offers spread payments, which can alleviate some of these concerns.

6. Maximize your timing. SA runs out in December, so buy in early January to get nearly three years of coverage. Make sure this fits in with the timing of your other volume purchases, and if not, try to sync them up.

7. To make the most of SA, make sure you have a good inventory system for your software assets. This way you know exactly what SA covers.

8. Precisely determine your upgrade plans. Unfortunately, you're flying somewhat blind as you're making choices to upgrade to incomplete software.

9. SA doesn't cover operating systems from OEMs—but you may be able to buy a non-SA upgrade.

— Doug Barney

Not So Assuring
It's clear that customers want Microsoft to rethink SA. If it must keep SA, then at least lower the costs, lengthen the terms and guarantee the upgrades.

Extending the term to four years and offering two possible upgrades within that period would help. "This would let users decide if a product is worth upgrading to immediately or waiting for the next release. Customer adoption of a release would send strong feedback to Redmond about how their product is being received and whether it truly contains the benefits that the Microsoft hype machine claims," says Fix. "On Microsoft's end, a four-year cycle would not require pushing an inferior product out every two years just to make the current SA subscribers happy." And keeping its customers happy, ideally, should be Microsoft's goal.


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