Software assurance requirements have obvious benefits for Microsoft but the potential impact on customers is another story.Microsoft wants to change how businesses buy Windows by essentially driving IT organizations to purchase Software Assurance upgrade protection. In a dramatic departure from the past, Software Assurance or Enterprise Agreement is required to buy the main business version of Windows Vista and to obtain vital desktop deployment tools.
Windows XP Professional carries no such requirement. Office 2007 imposes similar licensing changes, but there is a difference: Many businesses already buy Office through volume licensing. By contrast, most businesses buy Windows on new PCs.
Buying changes could greatly impact Microsoft partners. Those partners specializing in volume licensing sales could see revenue increases; Microsoft generally kicks back some percentage to partners facilitating the sales. On the other hand, partners selling Windows PCs and direct services could see revenue shifts or declines. One services opportunity would be shipping customers' volume-license image on new PCs.
Software Assurance obligates businesses to a two- or three-year contract attached to Open, Open Value and Select agreements; subscribers pay 29 percent of the desktop software price annually for the term of the contract. Microsoft realizes Software Assurance subscription payments on its balance sheet as unearned revenue.
Windows Vista Enterprise includes features or licensing attributes not available with other versions of the operating system.
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Those features are:
• bitLocker drive encryption,
• diskless PC and remote boot capabilities,
• MUI (Multilingual User Interface),
• SUA (Subsystem for Unix Applications) and,
• virtualization of up to four Vista Enterprise licenses.
Critical deployment tools also require Software Assurance, and those include the MDOP (Microsoft Desktop Optimization Pack).
For companies considering Vista deployments, the desktop optimization pack is a must-have tool.
The forced path already is resulting in changes. In Microsoft's 2007 fiscal fourth quarter, unearned revenue balance for the Client division, whose major product is Windows, grew 25 percent.
On July 26, at Microsoft's annual financial analysts conference, Chief Operating Officer Kevin Turner said that approximately 42 million Windows PCs are covered by volume licensing. Among midsize businesses and enterprises, Windows annuity contract penetration is 19 percent, he said.
"I think it moved a point or two" because of the volume license changes, Turner said.
Before Vista's release, most businesses purchased Windows on new PCs. About 80 percent of Windows client revenue comes through PC sales. A key word in all this is "choice;" customers chose to buy Windows on new PCs. Microsoft wants customers to buy differently, so it has changed the purchasing rules.
The major benefit goes to Microsoft rather than customers or even the channel. The company is willing to supplant customer choice for the benefit of its balance sheet. Consumer purchasing by way of annuity licensing contracts smoothes out Microsoft revenue, reducing the highs and lows between product release cycles and the uncertainties of customer upgrades. Microsoft needn't worry about when Software Assurance subscribers upgrade because the company already has its money. The major channel opportunity is services certainty. Customers with Software Assurance are committed to deploy something, sometime.
Joe Wilcox is editor of eWEEK Microsoft Watch (www.microsoft-watch.com) and can be reached at joe.wilcox@ziffdavisenterprise.com.
