In Software Licensing as in Taxation, Two Plus Two is Not Always Four.

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I recently wrote an article about a friend who purchased Office 2007 in the early days of busy season. This license is called an “OEM” license, and cannot be transferred to a new computer. In my case, Rhonda bought three copies of Office 2007 with three laptops. When those laptops wear out, have Diet Coke spilled on them, or are otherwise retired, the “rights” to run Office 2007 cannot be transferred to the replacement hardware (e.g. the license goes with the hardware instead of being portable to whatever hardware you choose to use, as you might have with a “Standard” or “Full” license.) Other license types include “Upgrade”, “Academic”, and various forms of volume licensing.

Just as many of us have learned with taxation, two plus two doesn’t always equal four in the world of software licensing. If one purchases one kind if license, you may get additional rights (such as the right for employees to install software on their home PC’s, the right to upgrade and downgrade to earlier or later versions, etc.). Just as structuring a transaction for tax purposes is very technical and can have huge implications for the total cost of ownership of an acquired business, the subject of software licensing is very technical, and one really needs to work with an expert when you are trying to meet your organization’s needs so that the type of license you purchase meets ALL of your needs for the software.

With that in mind, an industry peer (Ken McClelland at Network Management Group) wrote this excellent explanation of the difference in OEM and “Open Licensing with Software Assurance” – two opposite ends of the spectrum in terms of rights imparted to the user (thanks to NMGI for letting me repost this). [BTW, these guys have a site where they recommend hardware for CPA firms and other professional service organizations at which receives rave reviews. One participant who paid $350 for a one day class I taught recently wrote that “The hardware site ( was worth the cost of the seminar by itself.”] Let’s get to the question:

Q. Why is it cheaper to buy an “OEM” license of Microsoft Office with a new computer instead of purchasing a copy through a volume licensing program like OpenLicense, or than purchasing the copy of the software at retail in a computer store. If it’s all Microsoft Office (and the same version), why do I care what kind of license I purchase?

A. An OEM license is cheaper because you don’t get all the “rights” that you receive with Open Licensing.

  1. With OEM you do not have any downgrade rights (if you wanted Office 2003 but they only bundle with 2007).
  2. With OEM the license is tied to that PC….cannot be transferred to another PC if the user upgrades hardware.
  3. Open License with Software Assurance would allow for any upgrades for free as long as the software assurance is kept current and up to date. If you own xx07 and xx08 comes out you have no additional expense to upgrade.
  4. Proof of ownership is much simpler under Open License as all licenses are documented on the Microsoft eOpen website. Also as mentioned, a single license key.
  5. If you have Office under Software Assurance (SA is an add-on which gives you automatic upgrade add-on for the volume licensing plan)…you get work at home rights which allow employees to install Office on their home system for only the cost of install media. They have rights to run the software on their home pc as long as they are employed by your firm and Software Assurance is kept current (!)
    [Word and Excel as an employee benefit – wow!]

A subsidy promo just ended (Jan 31) on Microsoft Office that you could have got up to $150 / license that could have been used for your local reseller to provide services.

Currently, the promotion is that you can get Office Enterprise for the price of Office Pro. Max 249 licenses.

Basically it boils down to determining which if any of these features are important to your firm and choose the appropriate licensing strategy. BTW - A better comparison would be to take Open License price (with no Software Assurance) vs. the OEM. Price for the Office Pro 2007 should be somewhere around $430 – so your new delta would be $170 or so.

Note: Software Assurance can be added to the OEM license as long as it is done during the first 90 days of ownership.

Well said, Ken. That’s exactly why we need an expert in this stuff. Thanks for doing such a great job on this, BTW.

Brian Tankersley, CPA.CITP is a CPA, speaker, and consultant based in Knoxville, Tennessee. He teaches continuing education classes with K2 Enterprises, instructs CPA review classes for Becker CPA Review, and blogs about accounting and technology matters on his website at


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