Deadline puts Microsoft's software maintenance plan on trial

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February 09, 2004 (IDG News Service) -- Many of Microsoft Corp.'s customers will get to pass judgment this year on the company's software maintenance plan when their current contracts come up for renewal. Some analysts see it as the biggest challenge yet for the much-critiqued Software Assurance (SA) program.
The main reason to buy SA is that it gives customers the right to the latest software at no charge over the three-year course of their agreements, users and analysts said. But with the next big wave of new Microsoft products not expected before 2006 -- the Longhorn time frame, in Microsoft-speak -- the software maker could see a customer backlash.
"We agreed to SA primarily because of pending upgrades and for the fact that it simplified things. Going forward, we will always weigh whether we should continue with SA or revert back to the pay-as-you-upgrade model, given the frequency of upgrades," said Randy Keefer, vice president of information systems at Microsoft customer NetJets Inc., a Woodbridge, N.J.-based seller of partial ownership of private jets.
Microsoft wants to sell SA because it guarantees revenue, and the company last year made significant changes to the plan to appease customers who complained it cost too much and offered too little. Now, analysts at Gartner Inc. believe Microsoft may ship interim releases of Windows and Office to make SA more attractive.
"The primary reason to buy SA is to get the right to future upgrades. If Microsoft continues to elongate release cycles, it could be that customers won't get an update in their contract period and would be upset that they are not getting a new version for what they pay," said Alvin Park, research director at Gartner.
Microsoft has no current plans for an interim release of Windows, a company spokeswoman said.
Many Microsoft customers are on two-year Upgrade Advantage (UA) contracts, which they purchased just before Microsoft retired that option on July 31, 2002. At that point, SA was introduced and became the only volume-upgrade option apart from buying a brand-new license. Those two-year licenses will be up for renewal this year, as well as a number of Enterprise Agreements (EA), which include SA.
Microsoft recently lowered its expectations for SA sales. The company expects between two-thirds and three-fourths of customers with EAs to renew their contracts. It predicts that no more than 30% of UA customers will buy SA, Microsoft Chief Financial Officer John Connors said last month. There are more than 200,000 UA contracts, he said.
Although it questions the value of SA, Gartner estimates that as many as 70% of EA customers will renew and that as many as half of Open and Select license buyers, which includes UA buyers, will sign up for the plan.
Microsoft charges some of the highest rates in the industry for software maintenance, and buyers should calculate whether SA is worth their money, said Julie Giera, a vice president at Forrester Research Inc.

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