Does Microsoft complicate its licensing on purpose?

Navigating Microsoft's complex rules and programs for software licensing has been notoriously difficult for businesses -- a pain point not lost on the company, which for years has said it is trying to simplify the process for customers.

But remarks made recently by Microsoft's top executive, as well as suspicions raised by customers and software consultants, suggest that Microsoft keeps its licensing complicated for a reason, and that it has no plans to make it any simpler in the foreseeable future.

CEO Steve Ballmer was asked earlier this week at an event in London when Microsoft will simplify its licensing, according to several reports. His response: not anytime soon. "I don't anticipate a big round of simplifying our licenses," Ballmer was quoted as saying. "Every time you simplify something, you get rid of something."

While he acknowledged licensing is complicated, Ballmer said those complications sometimes allow customers to use the fine print to save themselves money. Simplifying the process, he reasoned, would cost them that advantage.

In a recent interview, Microsoft Business Division President Stephen Elop also defended Microsoft's licensing. He acknowledged that it can be difficult to contend with, but said customers find it worth the time and money they invest because it brings them products that help them to innovate and lower their costs.

Customers tend to take a big-picture view of licensing, according to Elop -- that is, they look at the value it adds to their businesses overall, rather than dwell on the minutia of individual licenses required for the products they use.

"Customers want the amount they pay to be tied to the value that they’re driving, the usage they’re getting -- that’s why these models are so complicated," he said. "For different customers, these things are measured in different ways.

"What a customer will do generally is take a big step back and say, what am I paying for e-mail? What am I paying for collaboration? And they will make a determination as to whether they think that’s fair value or less than fair value," he said.

Nevertheless, customers grouse that Microsoft's licensing terms -- particularly a requirement that they buy client access licenses (CALs) for each employee who uses Microsoft's business software -- are harder than they need to be. Some are resigned to their fate, as they don't foresee any long-term resolution to what has been a constant problem.

"I would never say that it's easy," said a senior manager at a Silicon Valley gaming company that uses Microsoft's products. While his company is generally happy with the products it uses, he said, "it's always challenging" to ensure his company stays compliant with Microsoft's licensing agreements -- especially when it comes to CALs.

In fact, the changes Microsoft has made to simplify its licensing over the past several years have only made it more complicated, according to the manager, who asked not to be identified because he is not authorized to speak publicly for his company.

"It seems like every two or three years, Microsoft changes the way they do things," he said. "I know they're trying to make it simpler -- I know that's what they say -- but the fact that it's changing does not make it simpler. Each time we go through [a change] we have to learn again how it's done."

For sure, licensing software from large vendors has never been a walk in the park for business customers, for various reasons.

Scott Rosenberg, CEO of Woodbridge, New Jersey-based Miro Consulting, which helps companies analyze licensing agreements with Oracle and Microsoft, said it's not really in the interest of large vendors to make licensing easy for customers, who they know have limited options to go elsewhere for products.

"Once you're on Microsoft, you're on Microsoft -- where else are you going to go?" he said. "In a sense, they have you where they want you."

This locked-in feeling is what many customers think gives vendors like Microsoft and Oracle an unfair advantage over them, and it's the reason vendors are not inclined to make licensing any easier, Rosenberg said.

Still, Microsoft's licensing is unique in requiring companies to purchase CALs in addition to whatever per-CPU pricing they pay for a piece of software, he said. This has been one of the biggest areas of contention for customers for years when it comes to Microsoft's licensing.

Microsoft sells access licenses to its software and services in different ways. Sometimes the price is built into the cost of a hosted service -- something that's called a subscription access license (SAL) -- and sometimes CALs are sold in packages.

Elop said Microsoft has made its pricing for CALs, as well as the process for buying them, as flexible and painless as possible, and that CALs are one of the company's most popular licensing items.

"[They're] very successful on our price list," he said. "When you look at how they license the CALs, the customers have recognized there’s tremendous value derived from bundling CALs together, licensing the suites. We have all sorts of ways of making it easier for customers to take advantage of these things."

However, that success probably stems from CALs being a requirement for many Microsoft licensing agreements, leaving customers little choice in the matter, said Paul DeGroot, an analyst with Directions on Microsoft who has closely studied Microsoft's licensing.

"Customers do not particularly like them -- they have to buy them," he said.

Customers dislike the CAL system for several reasons, DeGroot and others said. One of its most daunting aspects for a company is knowing whether it has enough of them. Because of that, customers end up buying more than they need, thus paying for licenses they aren't using, DeGroot said.

On the other hand, customers sometimes don't have enough CALs and find themselves in violation of a licensing agreement if Microsoft investigates, he said. "They are impossible to track, and because they're impossible to track, customers can very easily get in very serious trouble for not having the right CALs and the right number of CALs," he said.

The CAL-counting system is particularly difficult when a customer has to re-evaluate a license at the end of its term, and count the number of people inside the company who have access to each product that requires a CAL, said Stephen Hultquist, principal of Infinite Summit, Boulder, Colorado.

Hultquist serves as an independent CIO to many small companies, and he said companies that are growing quickly or are constantly in flux with their employee count have an especially hard time keeping track.

"CALs are the most evil thing Microsoft has ever done, especially for someone who has to manage the number of users in an organic organization where you have to be flexible," he said.

Scott Noles, director of technology and education at Microsoft customer Kinex Medical, in Waukesha, Wisconsin, agreed that making sure his company is compliant with Microsoft's licensing terms is difficult, even when he has made a concerted effort to do so.

"If people ask me, I say I'm pretty sure I'm compliant," he said. "I believe we've done our due diligence, but would that hold up under tight scrutiny? I don't know if I've missed a license agreement or if one has expired or not. There are situations where I just don't know because it's too confusing."

It's so difficult, in fact, that many companies need help to navigate licensing Microsoft products. Both Noles and Hultquist said they use third parties to help them wade through Microsoft contracts. "I think it's overly complicated. Even the rep that we use locally has said, 'If it wasn't so complicated, I wouldn't have a job,'" Noles joked.

With more companies pondering or implementing a mix of traditional software and hosted services -- such as Microsoft's Business Productivity Online Suite, a bundle of hosted collaboration and productivity services -- Microsoft licensing is bound to get even more complex, DeGroot said.

He said that the way Microsoft's enterprise agreements (EAs), or special licensing contracts available to enterprise customers, work now, many companies are still paying for CALs for all of their internal users, even if they have switched some of them to Microsoft's hosted services.

For instance, if a company with an EA has 1,000 people using Exchange, and half are accessing the software on-premise and the other half using Microsoft's hosted Exchange service, that organization will be paying more than it should for that hybrid environment.

"You would have to buy 1,000 licenses for internal users even though only 500 people are using it, then you would buy 500 subscriptions [to the hosted service] on top of that," he said.

Microsoft is still working out how to balance this hybrid licensing, and right now offers some credit back to companies in such a case, DeGroot said. However, a company still could be paying twice for licenses if they try to mix software and services.

As Microsoft tinkers with its licensing to better accommodate these hybrid environments, Elop said it's important to keep in mind that Microsoft's reason for having a variety of licensing options is to give customers choice. While it might take them some time to figure out which provide the best fit, he said, it will ultimately be worth it.

Copyright © 2009 IDG Communications, Inc.

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