Microsoft's controversial new software licensing structure has been tipped by analysts to succeed, despite recent high-profile attacks by the UK government and other public bodies' defections to alternatives.

The company's Software Assurance scheme, which replaced all existing policies on 1 October this year, eliminated version upgrades in favour of an annual fee as part of a two-year maintenance contract, making IT buyers pay full prices for upgrades if not covered.

Dubbed a 'Windows Tax' by some, the scheme will raise software costs for many customers by between 33 and 107 per cent, according to analyst group Gartner.

Industry watcher The Infrastructure Forum estimates that Software Assurance will cost UK business around £880m over a typical four-year investment cycle.

The Office of Government Commerce (OGC) estimates that the UK government will spend around £60m a year of taxpayers' money on licences for its 500,000 public servants, enough to fund a fully equipped medium-sized hospital, according to OGC chief executive, Peter Gershon.

"We will not stand by and tolerate suppliers which seek to raise prices of products which are in widespread use across the public sector where the increases take advantage of our dependence on these products and simply cannot be justified on value for money grounds," he told The Times.

Sun Microsystems says it has already persuaded some publicly funded bodies, including the Scottish Police Force, over to its StarOffice alternative to Windows since the inception of Software Assurance.

Scottish Police estimates it will save £245,000 a year from switching, and several IT managers contacted by vnunet.com said they were "thinking twice about Microsoft".

"Microsoft is dominant in the desktop and is trying to work itself into back-office supremacy through .Net," said Sun spokesman Jon Tutcher. "One single vendor environment makes you easier to hack into from a security standpoint, plus that vendor has you locked in."

Sun is pushing the StarOffice suite, version 6.0 of which will ship in the spring, as a free software alternative that can run on Microsoft platforms. Tutcher said it contains all the necessary office packages and enables companies to bypass the Redmond giant.

But an analyst said that any reaction against Microsoft's licensing scheme was a "short to medium term problem".

"Microsoft has acknowledged that there is a degree of pain involved moving across to any such scheme," said Tim Jennings of industry watcher Butler Group. "People will have to come to terms with the way software is moving away from product-based to service offerings."

Jennings explained that StarOffice was a "competent product", but without strong marketing behind it, would not seriously dent Microsoft's dominance in the office space.

Microsoft is also feeling pressure in the server market. IBM announced this week that it is to offer Microsoft's open source rival Linux on all its server and mainframe lines and invest more than $1bn in the operating system. Previously IBM only offered Linux on its xSeries of servers.