Microsoft's Confusing New Licensing Structure

by Gary Boomer, CPA, and Eric D. McMillen, MCSE, CCA, of Boomer Consulting

Many of you have heard that our favorite software company located in Redmond, Washington is introducing a new licensing plan and that it will affect your firm. But how many of you have any idea how it will affect you? I want to clarify how your firm will be impacted by the new licensing plan and what you need to do to prepare for it.

Currently, Microsoft has three volume licensing plans for software.

  1. The Open License 5.0 plan is for firms with as few as five machines.
  2. The Select License 5.0 plan is for firms with 500 or more client machines and a two-year plan for software acquisitions.
  3. The Enterprise Agreement 5.0 is geared towards firms with 500 or more machines, which basically allows access to all licenses during a three-year time period.

The software covered by these license plans can be upgraded on an as needed basis through the purchase of either a Version Upgrade license or a Product Upgrade license which would allow you to upgrade to a newer release of the software, i.e. Office 97 to Office 2000 or with the Product Upgrade to a more robust version of the software, i.e. Office 2000 Standard to Office 2000 Professional. Microsoft also offers an add-on to the Open and Select programs called Upgrade Advantage, which allows access to the most current version of the software during the term of the agreement. This model of software upgrade will be coming to a halt as of October 1, 2001.

On October 1, 2001 Microsoft will release the new 6.0 version of their volume licensing plans. A few of the changes that may impact you are the Select license is being aimed at firms with 250 machines or more as opposed to the 500 machine limit, and Microsoft will no longer be offering the Version, Product, or Competitive Upgrade licenses.

Instead it will be phasing in a new program called Software Assurance, which allows firms enrolled in the Open, or Select licensing programs access to the most current versions of the software. The recurring costs after the initial term of the agreement for the Software Assurance program will be 29% of the full license price for desktop software and 25% of the full license price for server client access licenses, i.e. MS Office Professional, which runs about $600, would cost $174.

But there is a catch; to qualify for enrollment in the Software Assurance program, you must meet one of two criteria.

  1. Be currently enrolled in the existing Upgrade Advantage program or
  2. Have an Open or Select license on the current version of the software such as Office XP and Windows 2000 Professional.

So what will happen if you don’t enroll in the Software Assurance program by the February 28, 2002 deadline and then decide to upgrade later? You will wind up paying full price for all of your licenses.

According to a Guernsey Research study, organizations that upgrade every three years will pay about 40% more for their software while organizations that are on a two year upgrade cycle will see a decrease of around 19% in licensing costs.

So after all of this, what is my recommendation? It depends on your current situation.

  • If you are currently an Open or Select program participant running older software, I would advise that you enroll in the current Upgrade Advantage program which will be grand-fathered into the Software Assurance program at the end of February.
  • If you are currently in the Open or Select program and running the most current versions of software, I would plan on joining the Software Assurance program before the February 28th deadline.

These are the two options that will save you money in the long run, providing you are going to continue to use Microsoft software. If you decide that you are not going to use Microsoft software, I would begin researching the alternative packages and calculating the added costs of conversion and retraining of staff. A colleague of mine put it best, you hate to pay them any more than you have too, but fortunately it’s cheaper than fighting them.


Current Situation:

Current Open / Select program licensee for older software Windows 95, Office 97.

Recommendation:

Enroll in the Upgrade Advantage Program prior to February 28th.


Current Situation:

Current Open / Select program licensee for current versions of software Windows 2000 Professional, Office XP.

Recommendation:

Enroll in the Software Assurance Program prior to the February 28th deadline.


Current Situation:

Current Open / Select program licensee for older software Windows 95, Office 97 with no plans to pay anything more to Microsoft.

Recommendation:

Research your alternatives (WordPerfect Office, StarOffice) and prepare for the additional costs of conversion and retraining of staff.


Article by Gary Boomer, CPA, and Eric D. McMillen, MCSE, CCA
Boomer Consulting

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