Redmond Negotiator

Microsoft's Divide and Conquer Strategy

If you think Microsoft will be offering the many upcoming versions of Office and Vista simply in the name of consumer choice, then Braden's got a bridge he'd like to sell you.

By now you've seen the news: Microsoft Office 2007 will have seven different versions, plus snap-ins (which seem like a pretty cool idea). And, of course, if you're making a purchase decision, you have to analyze a whole new set of Open licensing prices (at different price levels), Select pricing (at different price levels) and, of course, Enterprise Agreement pricing will need to be re-worked too.

Windows Vista will also have something like six flavors, so you'll have to figure out with your hardware OEM which version to get, and also look at the Software Assurance and upgrade rules for the new options. [Editor's Note: The official Vista editions were formally announced soon after this story was published. Find out more about the versions here.]

Why is Microsoft offering so many different versions?  Let's take a quiz. Is it because:

a) Microsoft wants to offer customers more options?

or

b) Microsoft needs to increase revenue?

Here's a hint: One of Microsoft's key business goals for many years has been to increase "revenue per desktop." Not that there's anything wrong with that – it's the correct thing for a profit-seeking corporation to do.

Since Office and Windows are the two biggest chunks of Microsoft's revenue, it stands to reason that these new versions (and their pricing strategy) are intended to increase revenue. Since we haven't yet seen the final licensing rules (and volume prices) for either product, nobody can say for sure what your additional cost will be.

Now, unless you only buy retail shrink wrap product, you'll have to wait until later this year to find out how much the next version of Microsoft Office will actually cost. We have, however, seen the retail pricing: For example, Office Standard 2007 will cost $399, just like Office 2003 costs today.

But Microsoft watchers have known for years that Microsoft uses licensing rules and product configurations to increase revenue without actually increasing prices. For example, long ago, you could use Office in "concurrent licensing" which really saved a lot of money for users. That option was discontinued. After that, you could skip a version and just buy a version upgrade to get current again. But that option was also discontinued.

So even though Office Standard has been retailing for around $399 for as long as I can remember, Microsoft has managed to continue increasing the "dollars per desktop" value of the product.

Of course, "Office Professional Plus 2007" and "Microsoft Office Enterprise 2007" are new products that you'll have to pay to get. I'm guessing Microsoft will throw Software Assurance customers a discount for this upgrade.

Nevertheless, if the Office product management team has done their job, there will be something really cool in those "Plus" and "Enterprise" editions, that will entice your technical staff or users to buy those upgrades. So let the boss know now that your Microsoft Office spending will be headed upward in 2007.

Now let's talk about Vista.

The same cautions apply: We just won't know for sure about cost impacts until we see actual pricing (including volume pricing) and can compare the licensing terms to what's available today. But knowing Microsoft's history, along with its well known quest for "recurring revenue" in the form of Software Assurance, there will probably be something you really, really want in Vista (maybe even something that you have with Windows XP Pro today), something that you can't get if you don't have Software Assurance.

And I'm not necessarily talking about technical features or functions. Instead, I can think of a number of usage rights that Windows licensees get today, that we take for granted, that would be very painful for an enterprise to not have. And these rights could be taken away with the stroke of a EULA.

If you're a volume-licensing shop, and you do anything beyond keeping the standard OEM Windows load on your machines, better start prepping your boss for possible cost increases.

And keep this in mind the next time someone pitches Software Assurance to you.

So, do you even care whether your employer spends more or less on Microsoft products? After all, it's not your money. Let me know by e-mailing me at scott@microsoftsecrets.com or post your thoughts below.

About the Author

Scott Braden has helped more than 600 companies negotiate Microsoft volume license deals. For a free case study, "How a Mid-size Company Saved over $870,000 on a $3 million Microsoft Enterprise Agreement, in Less Than Three Weeks," visit www.MicrosoftCaseStudy.com.

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