Microsoft's big danger: Crippling volume license defections

Many Microsoft volume licensees would rather switch than fight, with the big showdown coming in the next two years

Step into my time machine, if you will. Back in early 2007, Microsoft saw a big increase in unearned income -- from $10.1 billion in the final quarter of 2006 to $11.9 billion in the first quarter of 2007 -- widely attributed to a significant upswing in volume licensing.

Office 2007 hit the streets in November 2006, and Windows Vista started rolling out in January 2007. Many companies balked at installing the ribbon-laden Office 2007, and disdain for Vista ran high. Savvy businesses facing huge software bills took advantage of the upgrade reticence to lock in favorable volume licensing terms. Microsoft sold a lot of volume licenses.

Voluming license contracts back them were just as ridiculously complicated as they are now, but most standard volume licensing contracts -- both the Select License and Enterprise Agreement versions -- ran three years, with options to renew for an additional one or three years. Some large companies negotiated flat five-year contracts at rates that, in retrospect, were quite favorable.

The upshot: Many big companies' Microsoft volume licenses will be up for renewal in the next year or two. And they're looking at a vastly different software landscape this time around.

Five years ago, every PC needed Office -- or at least that's how it appeared. Execs who made the big-buck licensing decisions wanted to put a chicken in every pot and Word on every desktop. Microsoft Office amounted to something of a least common denominator.

Times change. Most execs in a decision-making position nowadays have struggled with Office's frustrations: Word paragraphs that refuse to stay put, Excel graphs that just don't look right, or presentations that won't pause at the proper point. They're knowledgeable and experienced enough to realize that few people in their organizations need automatically generated three-level indices or selectively filtered pivot tables or live-updating graphs. Those bells and whistles ring some chimes in rarified circles, but for most people, simple has a certain charm -- and the rest is a waste of time.

A friend of mine recently attended a closed-door briefing that drew CIOs from many large organizations. After the meeting, several execs started talking about their Microsoft volume licenses, which are up for renewal in the not too distant future. The CIOs readily admitted that the vast majority of their users don't understand, don't want, and -- most important -- don't need to wrangle with the demons that bedevil the Office apps.

It pains me to agree with them. I've been turning out books about the arcane inner workings of Office applications since the days of Word 2.0. Alas, I see the writing on the wall. These CIOs do, too. And their money's on the line.

The general concensus of these CIOs: There's no reason to renew the volume licenses for 80 to 90 percent of their users. Instead, they can get most of their users up on Google Docs in days, including training, with other Google Apps available as the need arises. They can cut their Microsoft client access licenses (CALs) by 50 percent or more as well, and end up with a happier, more productive user base, running simpler software that takes far less support.

Of course, this is exactly the scenario Microsoft is trying to forestall by rolling out Office 365. Although we're all just starting to struggle with the details of Office 365, initial impressions aren't particularly favorable. At almost $300 per head per year, it's expensive. Many view Office 365 as the harbinger of pay-as-you-go software -- which, of course, it is. And Office 365 does nothing to reduce the complexity of the underlying applications -- quite the contrary.

I have no idea if most CIOs with volume licenses coming up for renewal feel the same way. But I have a suspicion that Office 365's going to be a very hard sell to big companies that are looking to make every buck count. The next couple of years should tell us much.

This article, "Microsoft's big danger: Crippling volume license defections," was originally published at Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog.

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