Microsoft licence fees could double

Microsoft unveiled a revamped licensing programme yesterday that includes a subscription option for enterprise customers. But analyst Gartner claimed that the new model was likely to increase software prices astronomically for customers that upgrade every four years or more.

The analyst pointed out that a customer that typically upgrades within a three-year window may break even or possibly save money by going to the annuity model. This is based around a 'Service Assurance' contract, whereby the user commits to buy upgrades for an annual fee.

Gartner said that for a company with 5000 Microsoft Office desktops, the model translates into added costs of between $400,000 and $700,000 for a three-year upgrade, and between $900,000 and $1.6m for a four-year upgrade cycle.

According to Gartner analyst Neil McDonald the average increase in costs for a company that upgrades every three years is 35 to 77 per cent. "If they upgrade every four years, it will cost them 68 to 107 per cent more." In effect, users would be rewarded for upgrading regularly.

But Microsoft said the changes would result in a reduction of, or no change in, licensing costs for approximately 80 per cent of its volume-licensing customers. Companies that upgrade less frequently could see their costs increase, the company said.

Other changes to licensing, which take effect from 1 October, include a simplified approach to upgrades, a simpler sales process and new online licensing management tools.

Bill Henningsgaard, vice president of worldwide licensing and pricing at the software giant, said: "As Microsoft has moved from a retail, shrink-wrap approach to more of an enterprise focus, our licensing programs have also needed to change."

Customers with 250 or more PCs will be able to license all Microsoft enterprise software as a subscription through the Enterprise Agreement 6.0 Subscription Programme, he said. The previous minimum number of PCs was 500.

Microsoft is also replacing what it calls the "alphabet soup" of various upgrade plans with a streamlined programme called Software Assurance that includes rights to upgrades released during the terms of the agreement.