Microsoft subscription licensing: second impressions

Microsoft subscription licensing: second impressions

Microsoft recently announced that American and Canadian customers will soon be able to buy licenses by subscription, as customers in many other parts of the world have been doing for some time. I’m already on record with my first impressions of this program, so here are my second impressions, formed after listening to today’s webcast.

  • There must be some special legal and/or financial reasons for Microsoft to take such pains about not calling this a lease. It sure walks and talks like a lease. You pay less money than you would to buy the software outright, and at the end of your agreement you can (a) renew the subscription, (b) cancel it and stop using the software, or (c) buy it out (and then kick yourself for not having bought it in the first place).
  • The Open Value Subscription (OVS) program is not available for every Microsoft product. To start a subscription, you must order at least five copies of one or more of the following products:
    • Office Professional Plus
    • Office Small Business
    • Core CAL (a cross-program license)
    • SBS CAL (a license to use Small Business Server)
    • Windows Vista Business Upgrade
    • Small Business Desktop (don’t get me started)
    • Desktop Professional (like Small Business Desktop, but more)
  • All of the aforementioned products must be purchased company-wide; that is, one copy for every desktop and laptop computer your company owns. So let’s say you own 20 computers, all licensed for Office Small Business, and you buy five new computer for five new employees. If you want to use the subscription model, you’ll need to buy 25 subscriptions, not just 5.
  • To soften the impact for companies who already own perpetual licenses for some products, there is a 50% discount on the first year’s subscription payment. So if the subscription price for Office Small Business is $150 per year, you would end up paying $375 per copy over three years if you already owned a qualifying product, rather than $450. (That’s really effectively a 16% discount, but it’s much nicer to advertise a 50% discount, isn’t it?) And again, you’re spending this $375 for a product that you already have rights to use.
  • Microsoft will point out in response to the preceding paragraph that the license you get through OVS will be a more powerful license than what you already own, if what you already own is a retail version, OEM version, or Open License Software Assurance, or even Open License with non-company-wide Software Assurance. Whether you really need those volume license or Software Assurance benefits and how much they’re worth is beyond the scope of this post.
  • Once you’ve started your subscription with a company-wide purchase, you can add additional products like server software or other Office family products (Visio, Groove, OneNote, and so on). You can get individual licenses for these products. You’re not required to buy them for every PC in the company. More on this a few paragraphs later.
  • There is good news and bad news for companies who expand or contract during the subscription agreement. The good news is potentially very good news for rapidly growing companies. If a 10-computer company enters into a subscription for Office on April 1 of this year, they have to buy 10 licenses. Now suppose they add three computers on July 1 and three more computers on October 1. You might think that they would pay 75% of the first year subscription for the three computers added in July and 50% of the subscription for the three computers added in October. You would be wrong. In fact, this company pays ZERO additional money for those six new licenses until April 1 of next year. Then, when the second year of the subscription begins, they pay for 16 licenses. They’re getting 45 computer-months of licensing free (3 x 9 plus 3 x 6). If they expand on May 1 from 10 computers to 50 computers, they still pay nothing until the following April and the savings are even greater. Sounds like there is going to be a wee bit of temptation on the part of business owners to undercount the number of computers they have in the company on the date of the agreement. But we can count on everyone to play fair, right? I mean, it’s hardly like there’s a track record out there of people breaking the software licensing rules.
  • Continuing with the good news front, suppose your company shrinks from 20 computers on day 1 of the subscription to 10 computers on day 366. In this case you only have to renew 10 licenses, not 20. (I’m not sure what happens if you still own those 10 extra computers but they’re sitting in a closet because you don’t have the staff to use them anymore. I think you can just stop paying as long as you agree not to run the software on those computers. But what happens if six months into the second year, your fortunes turn around again and you are able to fill some or all of those vacant positions. Do you get a free ride like you did while you grew in the first year? I can see it now … you’ll have 100-person companies that mysteriously shrink down to 5 computers for one day a year: the day they start or renew their Open Value Subscription.
  • Now the bad news. Suppose that 6 months into the agreement you want to add a new product. You think you’re going to get the cost of that product reduced by 50%? Wrong again. You pay full freight, and then you pay full freight again six months later when you renew the subscription. You just paid for six months worth of a license that you can never use. So unless you buy these products within a month or two of your renewal date, I have a feeling you’re going to want to buy perpetual licenses for them rather than bundling them into the subscription. (On the other hand, suppose you know for sure that you only need the software for six months. You could get a subscription for it at a fraction of the purchase cost, and then simply choose not to renew it — I think. I don’t think anybody asked about “truing-down” non-company-wide products midway through the subscription.)

So now for the $64,000 Question: Is OVS a good deal? I don’t know. First of all, the price lists won’t be announced until February 1, so we can’t make any firm calculations and comparisons yet. We’ve been told, though, that the cost per license per year will be approximately 37% of the cost of the same product purchased through Open Business without Software Assurance. I don’t happen to have a current price list handy, but I can tell you that in 2006 Software Assurance cost roughly 58% of the product license. Let’s take a product with a retail value of $100 under the Open Business program. Your purchase options would now be something like this:

  • Open Business, perpetual license, no software assurance: $100 in first year, $100 total over three years; company-wide purchase either optional or not available (I’m not sure which)
  • Open Value (traditional), perpetual license plus three years of Software Assurance, spread payment option: $52.67 per year, $158 total over three years; company-wide purchase optional (except for Small Business Desktop and Desktop Professional, which are always company-wide)
  • Open Value Subscription, license rights expire after three years: $37 in first year, $111 total over three years; company-wide purchase required
  • OEM license, perpetual but non-transferable license with limited usage rights that must be purchased along with a new computer: somewhere in the neighborhood of $71 in first year and $71 total over three years; company-wide purchase not applicable
  • Retail license, perpetual, transferable license with limited usage rights: somewhere in the neighborhood of $110 in first year and $110 total over three years; company-wide purchase not applicable

Clearly the decision of which licensing program to go with will have to be made on a company-by-company and product-by-product basis. We in the licensing sales and advising business really need some sort of magic calculator that lets us enter in what we own today; what we think we will own in one, two, and three years; when we think Microsoft will come out with the next version of its software; when if ever we think we might actually start using the next version of the software; and how much value we assign to Software Assurance benefits such as home use rights, eLearning, employee purchase programs, and so on. Only after considering all of the above will we be able to make a truly informed decision.

My gut feeling, without having run any numbers, is that OVS will be the best choice for companies that currently own license for few if any current versions of Microsoft desktop products (because the credit for converting to OVS is pretty meager) and/or companies with rapid but speculative growth plans and limited cash on hand.

My other gut feeling is that Microsoft really hasn’t done much to address the fundamental problems with licensing that I documented 18 months ago.

If I ever advise a client to go the OVS route, I’ll let you know when and why. Meanwhile, keep watching for more news on this program.

Posted in All, MS Licensing, Technology on Jan 10th, 2008, 11:59 pm by David Schrag   

2 Responses

  1. February 28th, 2008 | 11:16 pm

    […] thoughts on Open Value Subscription, published I noted my reaction to Microsoft’s new license subscription model a few weeks ago. In anticipation of the […]

  2. argyle_sweater
    March 10th, 2008 | 4:59 pm

    Hey, take a look at this. Sounds like Microsoft is accepting some responsibility for some past issues with SBS. I read all the way through this thing and don’t know if the guy is real, but it’s at least pretty interesting.

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