In-Depth

Microsoft's Software Assurance Rankles Customers

Subscribers complain of high costs, low value.

• By Keith Ward
• 07/01/2007

Microsoft's Software Assurance (SA) licensing program could be in big trouble, with many customers feeling they're not getting their money's worth, according to a survey from Forrester Research.

The results of the survey, which were released Monday, indicate that many SA customers are considering not renewing their SA contracts — in fact, only 11 percent of the 63 customers Forrester talked with will definitely renew. Most of the others are on the fence or have decided against it.

SA is a maintenance program that, for a yearly subscription fee, provides 24-hour phone support, training and other benefits. But the reason most business opt for SA is to get new and upgraded products. It's also the main source of complaints among the customers in the Forrester report, authored by Vice-President Julie Giera.

This year is an important one for the SA program, as many agreements are scheduled to expire and therefore up for renewal. Of the customers Forrester interviewed, 86 percent have SA licenses that expire in 2007. Of those, 26 percent "will not renew". That's more than double the rate of those who liked the agreement enough to ante up again. Thirty-one percent were "Not sure/still deciding", 18 percent will renew "only for some products," and 13 percent will "probably" renew.

The report listed four primary areas of unhappiness customers have with SA:

• High cost. "SA costs, on an annual basis, 29% of the license for desktop products and 25% of the license for server products," according to the report. That means if Microsoft releases a new version of a desktop product every four years, it would end up paying more for a new license (116 percent) than if it cancelled SA and just paid for licenses when new products came out. For the case of customers who bought SA when Windows XP or Windows Server 2003 came out, it would cost even more, since it was five years between XP and Windows Vista, and will be five years between Windows 2003 and Windows Server 2008.
• Customers don't know when to expect a new release. Microsoft talks up a road map of two years for a "minor" release and four years for a "major" release, but that often doesn't happen.
• New releases take months to install, pushing deployment dates out even further. It's not unusual for a new desktop OS deployment in a large enterprise to take 18 months. Given that lag, it hardly makes sense to finish one deployment and have to dive right in to another. The report also stated that it isn't unusual for companies to skip versions entirely, which would essentially mean those companies are throwing their SA money away.
• The introduction of Enterprise client access licenses (CALs) weakened the perceived value of SA. Enterprise CALs are new license fees, on top of the original CALs, that companies pay for rights to some new functionality for products like Exchange and SharePoint.

Microsoft licensing expert and Redmond Media Group columnist Scott Braden has heard similar outrage from SA subscribers. "Customers are really mad about the CAL shenanigans. Microsoft has seriously violated their trust on this and I think shot themselves in the foot. A lot of customers were willing to buy SA even if the strict ROI wasn't there, simply because of statements from their Microsoft sales team to the effect of "if you buy SA, you won't have to worry about nasty surprises in the future." They now feel Microsoft burned them with Enterprise CALs.

Forrester's conclusion from the data? It's not good news for Microsoft. "The economics behind buying or renewing SA aren't nearly as compelling for many companies as appeared to be the case a few years ago when the program was first introduced. Long upgrade cycles, lack of a detailed product road map for new products, introduction of Enterprise CALs, and costs of SA are prompting many more organizations than before to reconsider their licensing strategies."

Stacie Sloane, director of marketing and communications for Worldwide Licensing and Pricing at Microsoft, said that Forrester's report is misleading because it's too small a sample. "The recent Forrester Research report on Software Assurance only looks at a subset of our customers and is not consistent with the feedback we have received. In fact, Microsoft's renewal rates are on target and in line with our expectations. An estimated 75 percent of our existing EA customers are renewing their Enterprise Agreements, which demonstrates that customers find value in the all the benefits this type of agreement offers," Sloane stated in an e-mail.

Braden said his feedback is more in line with what Forrester reported. He also believes that rather than make SA more palatable, Microsoft might actually tighten the screws even more. "Now that Microsoft has painted themselves into a corner, does anyone really expect them to fess up and grant big concessions and rebates to make things all better? Not Steve Ballmer's company. I fully expect them to instead up the ante in the 'gotcha' game by further penalizing customers who don't buy SA. For example, Microsoft's vague assurances about 'interim releases' — to me this means that service packs such as Windows Server 2003 R2, which used to be free, will now be SA only."

Customers can, and should, fight back, Forrester said. Rather than accepting onerous SA terms, businesses, Forrester recommends holding out for discounts off the renewal price in the 7 percent to 15 percent range.

Braden said the Forrester report accurately reflects his experiences as a licensing consultant, and warns Microsoft that it shouldn't underestimate the anger its customers feel at SA. "In some of the conversations I've been privy to, it reminded me of the small time thugs walking into a business, saying, 'Nice place you got here, would be a shame if it caught on fire.' And then later, after having received the protection money, they still burn the place down."