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Following its introduction in 2001, Microsoft Corp.’s Software Assurance program have evolved to cover a broad range of services besides software upgrades. While product delays and a liberal dollop of customer gripes have driven the changes so far, analysts say the company must find a way to assuage customers’ concerns that they aren’t getting value for money.

Microsoft has tweaked the details of Software Assurance and its subscription-based model since its initial release. The company initially delayed the sign-up deadline for more than a year and softened some of the program’s provisions, following customer complaints.

The deadline passed in the summer of 2002, and within about two months CEO Steve Ballmer admitted that the company was looking to add some flexibility. The main concern was how to do so without making the process too complex, Ballmer said at the time.

A significant overhaul of the Licensing 6.0 and Software Assurance plan was announced in May of last year and set to go into effect for all licensees as of Sept. 1,2003. The result of feedback from 2,500 customers during the year, the updated package left unchanged the core concept of a subscription to whatever Microsoft upgrades might arrive during the subscription period, At the same time, it added a variety of fringe benefits.

“We learned from customer feedback that they wanted more of a relationship with Microsoft, they wanted assistance beyond the procurement of the software itself,” said Mark Buckley, Microsoft’s license marketing manager for the U.K.

The additions added in September included free training, additional technical support free licenses for TechNet products, manageability tools such as Corporate Error Reporting 2.0 and Windows Preinstallation Environment, as well as home-use rights for Office, Project and Visio.

Since then, the Software Assurance plan has had sporadic emendations. For example, Microsoft required customers to license all processors on a multiprocessor machine, even if only some of the CPUs were used for the company’s applications. Following customer complaints, as of April, 2003, enterprises using partitioned machines could generally pay only for the processors used to support the software rather than for every processor on the server.

Also in July 2003, with The SCO Group litigation ongoing, Microsoft said it would pay its customers’ full legal bills if sued over intellectual property issues relating to Microsoft products, and said it wouldn’t limit its own liability in cases of damages caused by the company.

Software Assurance customers were allowed early access to Office 2003, and starting in last November, were given free access to Office 2003 add-on packages. From December of last year through April 2004, Microsoft offered rebates on Office 2003 packages purchased under the program.

In May 2004 Microsoft extended support for business products from 8 to at least 10 years. A change taking effect at the beginning of June allowed customers to set up a “cold server,” a duplicate used for disaster recovery, at no extra cost.

These changes have met with approval from resellers, according to Boston-based The Yankee Group, which recently completed a survey of Microsoft reseller and training partners.

“Ninety percent of them are extremely enthusiastic about [the changes], it’s causing a spike in their business,” said Yankee analyst Laura DiDio.

The larger questions are Microsoft’s next-round strategy for its licensing and Software Assurance program; and whether customers will go along with it for yet another round.

Gaining satisfaction among licensees may be another matter, however. Many licensees, particularly with the first batch of licenses due to expire this month, expected major upgrades and didn’t receive them, analysts pointed out. None of Microsoft’s changes have addressed this fundamental problem, made worse by the delays of Yukon (the next version of SQL Server), Whidbey (the next Visual Studio) and Longhorn (the next version of Windows client and server due in 2006).

Click here to read more about Whidbey and Yukon.

“No software vendor is going to guarantee ship dates, that’s a quandary Microsoft is facing,” said DiDio. Microsoft doesn’t have a formal plan for dealing with customers who feel they’ve received marginal value from the program, she observed. Instead the company is attempting to placate individual customers by offering extra training vouchers or even free license extensions.

“I would like to see Microsoft address this issue of that small but disenfranchised minority who bought stuff and got nothing for it,” she said. “They have been left out in the cold, and that’s unfortunate.”

Next Page: The Difficulty in Finding Value

To some observers, Microsoft efforts have been aimed at keeping the lid on the situation, not on addressing core concerns over delivering real value.

“No matter how you spin it, the changes are designed to make unhappy customers less unhappy,” said James Governor, principal analyst at RedMonk LLC, of Bath, Md. “Because they haven’t delivered more functionality, they’re focusing more on the operational aspects of the licenses. That’s useful, but somewhat opportunistic.”

On the other hand, Software Assurance suffers when compared with Linux vendor Red Hat Inc.’s controversial subscription licensing plan. Customers found value because Linux’s faster evolution is able to deliver significant improvements on an annual basis.

In the absence of a more rapid pace of development at Microsoft, analysts said the company will have to find some other way of making customers feel that they’re only paying for what they use.

The best deal for customers would be to subscribe to specific product upgrades, whenever they might arrive, though such an offer is next to impossible to find from any software vendor, much less Microsoft. “That’s a radical notion in the software industry which, frankly, is unregulated,” said DiDio.

RedMonk’s Governor said Microsoft may be forced to bend a bit in this direction due to competitive pressures, particularly from Linux. The open-source operating system has beaten out Windows in a few high-profile deals, including the German city Munich’s recent decision to shift its desktops from Microsoft to Linux, he observed.

“Don’t imagine [Microsoft] didn’t go to Munich and offer specific software upgrades. Their licensing is going to have to be more granular,” Governor said.

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