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Microsoft's license price increase 'lose-lose' for enterprises, say analysts

December 6, 2012 06:36 AM ET

Microsoft justifies the higher prices by claiming it now offers increased support across multiple devices, said NPI's report. But not everyone agrees.

In an October blog post, Forrester Research analyst Mark Batrick took Microsoft to the woodshed. "When I only have one version of Windows and Office but wish to access that version remotely or virtually via multiple devices, why should I have to pay more for the privilege?" he asked. "I am still only accessing my one version of Office, albeit it from different devices at different times, but I have to pay more?!"

Some see Microsoft's emphasis on user CALs as part of a larger strategy to shift customers to subscription-based licensing.

"They've thought this out," said Ullman "They're aggressively pushing the cloud, and changing their licensing to cloud terms and conditions. They using the licensing push to get customers to join their cloud wagon, and once you're hooked, they'll want to move you to subscription-based licensing."

Microsoft's Office 365 is an example of the strategy: Based on user licensing, an Office 365 subscription lets a worker run Office 2013 on up to five devices.

"This is a multi-fold strategy," Muscarella said. "They want to show the Street that they can compete on the cloud. They see where technology is going, and that their existing business model may die. So they're moving the oil tanker a few degrees each year."

Although the price increase went into effect Dec. 1, enterprises will continue to pay their already-negotiated fees until their current contract ends. When they next renew their volume licensing agreements, however, they'll face the higher user CAL price.

"Microsoft can't do a 180 and increase the price by some dramatic amount," said Muscarella of the 15% jump. "It's a game of inches for them. But [their licensing] is not less complicated. Whenever licensing is complicated, it benefits the vendor. A CFO once told me, and I've always remembered this, that 'Mystery equals margin.' That's true with Microsoft."

Muscarella called the increases and other licensing changes Microsoft has instituted a "lose-lose" for enterprises.

But it could be worse.

"Microsoft could, if they insisted, demand that a customer immediately purchase device CALs for all the devices that need them," DeGroot said of the many enterprises which now carry no CALs for many of the devices, like iPads and Android tablets, iPhones and Android smartphones, that BYOD is, no pun intended, bringing into the workplace. "That would generate more money, yes [but] it would also generate a great deal of ill will, and possibly less revenue in the long run."

By pushing too hard, in other words, Microsoft runs the risk of pushing enterprises toward alternatives. During a time when it's threatened from several sides -- the PC industry is in a slump, corporate IT budgets are pinched -- it can't afford to lose customers.

"This is a very, very smart move for Microsoft," said Ullman of the seemingly-small price increase. "There are a lot of customers out there with user CALs, so the impact is going to be substantial. It's not going to be just a couple of dollars."

Smart on the balance books perhaps, but not when it comes to treating its customers, who Ullman said have been hit with substantial increases -- in some cases double -- on all kinds of licenses this year.

Nor was the move unexpected.

"Microsoft is a licensing company," said Ullman. "They hate me saying it, but Microsoft is a licensing company, not a software company. It's driven by licensing."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at Twitter@gkeizer, or subscribe to Gregg's RSS feed Keizer RSS. His e-mail address is gkeizer@ix.netcom.com.

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