Should You Select Plus?

I got the main bulk of analyst comments following last week's post about Select Plus. It would be sheer negligence to let all that keen insight go to waste. So, this post will share the analysts', well, analysis of Select Plus.

Quick recap: The new program will be available on Oct. 1. Major differences in Select:

• No contract expiration after initial three-year commitment
• Single contract covering organizational entities and branch offices
• Thirty-six-month Software Assurance commitment option; no prorating
• Future pricing based on buying patterns after initial three-year contract period

Microsoft positions the program as simplifying volume licensing, since large organizations could use one contract for subsidiaries and branch offices.

"This is generally a simplification for customers that will be particularly valuable for distributed organizations that don't have the centralized control or resource to compile the forecasts required by the old Select," said Forrester analyst Duncan Jones.

Directions on Microsoft analyst Paul DeGroot agreed about "better contract management, although probably for only very large, global customers with multiple sites and agreements today. Anyone with one or a couple Select agreements probably isn't having a big problem."

"There are a couple of potential downsides," Duncan said. "The first is that the first time you sign up to Select Plus you pay a higher price for all the [purchase orders] until you reach the next threshold, which could be towards the end of the year. Under Select you get the lower price from Day 1."

"The other is the three-year [Software Assurance] commitment," Duncan explained. "Microsoft could have allowed pro-rated, coterminous SA from the initial purchase, which would have made it cheaper for most customers. We advise clients to evaluate SA carefully and take account of all the other benefits in it, but the main driver is the likely release date of the next version."

So, simplicity comes at a cost. "It's my impression that Microsoft's licensing group has a fairly clear mandate to generate more revenue. That is, they're not allowed to come up with new programs that don't show a net positive for Microsoft," Paul said.

He added, "The real change is not the three years, but the fact that it's mandatory in Select Plus."

Duncan described the three-year commitment as "a balancing act for Microsoft whether making it slightly cheaper—by allowing a purchase of less than three years—will deliver sufficiently higher adoption rates to offset the loss in revenue from selling fewer months. I'm not going to second-guess its judgment on that point."

Paul had no trouble second-guessing, particularly Microsoft's assertion that the three-year commitment change will lead more customers to adopt Software Assurance. "I think they won't." He warned: "The renewal thing is a nightmare, because every time you buy a license with SA in Select plus, you establish a new three-year time frame. Buy SA on a license once a month, and you have a renewal coming up once a month."

Gartner analyst Frances O'Brien also took a shy eye to renewal dates. "Select is already administratively burdensome compared to an [Enterprise Agreement]. Multiple renewal dates could exacerbate that." Part of the problem: "I have not seen an update of the new Microsoft Licensing Statement which will allow clients to get a view of their software entitlements across the board, so I am not sure how much that will help clients manage the multiple renewal dates."

Some people forget where all the volume-licensing madness really started. While volume licensing was messy under the tenure of Microsoft Chairman Bill Gates, the worst increases in costs and complexity came under the leadership of CEO Steve Ballmer. He assumed the chief executive's position in February 2000. In May 2001, Microsoft announced Licensing 6 and introduction of Software Assurance. The change would be one of the first major announcements made under Steve's command.

What happened? According to Gartner, most Microsoft customers saw their licensing costs increase 33 to 107 percent. Microsoft also demanded protection money, so to speak, in mandatory two- and three-year annuity contract commitments. Microsoft executives will surely argue that Software Assurance isn't mandatory because customers can choose not to get the upgrade protection. I say: Microsoft took away any other upgrade choice and the option most commonly chosen by businesses.

Paul says there is no end in sight. "A lot of the coverage of Bill Gates leaving has focused on Ballmer, and one thing that a lot of that coverage emphasizes is how Ballmer lives by numbers. He's a mathematical savant, and the numbers are critical to any decision he makes. He is, in effect, a quant. That helps explain a lot of things about how licensing works at Microsoft, and how it's likely to work well into the future."