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April 19, 2004

Longhorn delay expected to hit Microsoft upgrade program

Delays to Microsoft Corp's next desktop operating system are expected to compound discontent with Microsoft's Software Assurance (SA) program, leading to fewer renewals.

By CBR Staff Writer

Microsoft last week put shipment of Longhorn into the first-half of 2006, with analysts at the Gartner Group saying it expects delivery to slip even further. Longhorn was originally expected in the 2005 timeframe.

Delay to Longhorn will impact related products, such as the next Office, because interdependencies are expected that tightly link the operating system to applications.

News of Longhorn’s delay will dismay organizations already struggling to justify the return on investment received from Microsoft’s SA upgrade program two years ago. SA, introduced in 2002 along with new volume licensing agreement like Enterprise Agreement 6.0, provides customers with either a two- or a three-year contract.

Even before Longhorn’s delay emerged, Microsoft was preparing itself for relatively poor SA renewal rates, telling Wall St analysts in February that up to 70% of organizations who moved to SA from the previous Upgrade Advantage (UA) are not expected to renew. The first two-year SA contracts begin to expire this summer.

Analysts and Microsoft believe many UA converts jumped onboard SA for a quick up-grade hit, moving from Windows 98 or Office 97 to Windows 2000 or XP and Office XP.

According to analysts and ISVs, one bone of contention is SA’s lack of guaranteed product for organizations to upgrade to during the lifetime of their two- or three-year contract.

Now, with Longhorn and related applications not expected until 2006, at the earliest, and with many businesses not expected to upgrade to the operating system until after the first Longhorn Service Pack (SP), itself expected in 2007, it seems that renewing a two- or three-year SA agreement looks like a risky proposition.

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SA is going to be a very tough sell over the next while, and the Longhorn delay has made that worse, said Directions on Microsoft analyst Paul DeGroot.

Microsoft has created a situation where there are so many dependencies on the Longhorn product that when Longhorn gets pushed out, they all get pushed out. Next version of Office was supposed to be around Longhorn. Office for Longhorn in 2006? Maybe a three year SA will get you there, maybe it won’t, he said.

Steve Dunton, chief technology officer (CTO) for ISV and consultant TechTonik Ltd, said that through conversations with customers he’d learned a lot of users are not looking at renewing SA because Longhorn is so far out.

Ian Altman, chief executive of software and consulting house I Associates Inc, who keeps a watching brief on Microsoft licensing issues, said: Customers are getting smarter. They are not willing to buy something and get nothing in return.

Dunton said concessions could help Microsoft win back the disaffected. One move could be to make Windows available on a pay-as-you go basis – TechTonik’s activAeon XA lets organizations use Windows on per-use basis. Separately, reports said yesterday that this is one tactic under evaluation by Microsoft.

Microsoft, though, is ruling out per-use payments and added SA never provided upgrade guarantees. No one in the industry guarantees upgrades, Microsoft’s product manager for worldwide licensing and pricing Sunny Charlebois said yesterday.

She added renewal rates are hitting expectations and that customers should consult with their Microsoft software sales representative over delays to Longhorn and also the SQL Sever 2005 database, pushed back by at least six months into the summer of 2005. Each customer has very unique needs, Charlebois said.

In the face of biting opposition to SA from customers, Microsoft did last year attempt to enhance the program’s value through the addition of things like home-use rights and training vouchers. However, Gartner research director Alvin Park said these haven’t won over his clients. It’s the deciding factor on whether to renew, he said.

Park said customers are more likely to renew Microsoft’s volume-based Enterprise Agreements (EAs), which covers 250 or more desktops and that also provides premier-level, 24-hour a day, seven-days-a week, telephone help-desk support. EA’s have a renewal rate of 67% to 75%, according to Microsoft.

Park noted customers may be willing to renew SA if they, too, received premier-level maintenance instead of today’s internet-based support for PCs under SA, which happens to be charged at some of the industry’s highest prices, in terms of percentage of the software’s license price.

Charlebois, though, insisted Microsoft has added value to SA for customers following last year’s changes, just that these changes are only now becoming apparent to customers. A lot weren’t aware of the changes to SA. We are still generating awareness, she said.

This article is based on material originally published by ComputerWire

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