Your loss, their gain

A little advice for any company looking to sell off part of its operations during these troubled times -- you might want to check with Microsoft first to see how much it's going to cost you.

The longest and most complex research project I've ever done for The Gripe Line has uncovered some interesting revelations about Microsoft's 6.0 volume licensing program and Software Assurance. Acceleration clauses and other convoluted language in the 6.0 contracts regarding Microsoft's license transfer policies can obligate divesting customers to pay early for services they -- and the acquiring company -- will never receive.

This issue first came to light last fall when sketchy news reports surfaced about Microsoft filing an objection in the Kmart bankruptcy proceedings. As Kmart was divesting its Bluelight.com ISP, the reports said Microsoft had claimed Kmart could not transfer licenses of Microsoft software to the acquiring company without its permission. Kmart apparently resolved that situation to Microsoft's satisfaction shortly thereafter, but the story rang alarm bells for many readers. In just what circumstances would Microsoft claim any customer needs its permsission to transfer software to another corporate entity?

That seemed like a fair question, so I asked Microsoft for clarification. While they would make no comment on the specifics of the Kmart case, Microsoft officials pointed me to a page on its Web site (www.microsoft.com/licensing/downloads/license_transfer.doc) that outlines the company's transfer policies for mergers, consolidations, and divestitures. Frankly, I was relieved when I first read it because it seemed relatively benign. Licenses acquired under a Select or EA (Enterprise Agreement) could be transferred as long as they were perpetual, it said. There were some notification requirements, but they didn't strike me as outrageous.

But one thing that did stand out on that page, partly because it was in bold type, was a statement that SA (Software Assurance) could not be transferred. (SA is included as part of an EA and can be purchased in conjunction with a Select agreement.) That was a bit unsettling. Remember, Software Assurance is that very expensive maintenance program Microsoft pushed on volume-license customers last year by eliminating separate upgrade pricing. While most maintenance programs in the software industry provide product upgrades and some support for an annual fee of 15 percent to 20 percent of the license cost, SA costs 25 percent to 29 percent per year for upgrades alone. Did this mean SA customers would lose their investment on licenses that were part of a transfer?

Microsoft seemed oddly reluctant to provide further clarification on that point, and most of the analysts I asked about it were unsure of what Microsoft's actual policies regarding transfers in a divestiture would be. Corporate customers familiar with Microsoft's ways suspected it would be much worse than the document let on. "It will always come down to 'Let's work something out,' " said one. "Translated, that means, 'You have to give Microsoft a lot more money.' "