Volume Licensing: Simpler Is Better, Right?

This week, Microsoft publicized ongoing efforts to simplify volume licensing. My eWEEK colleague Peter Galli succinctly summed up the changes earlier today.

This afternoon, I spoke with Stacie Sloane, Microsoft's director of marketing and communications for Worldwide Licensing and Pricing, about the changes, which have been ongoing for about two years.

"Simplicity is always about balancing choice with flexibility," she said. "Our job, continuously, is to balance that choice."

Do You Speak My Language?
Complication has long defined Microsoft volume licensing, and that's something that won't easily change despite simplification efforts. The reasons for Microsoft's volume-licensing problems aren't complex. The same way lost boogycode from old Windows software haunts newer versions, volume licensing terminology specters spook newer contracts.

Simplification "is a huge task at Microsoft," said Paul DeGroot, Directions on Microsoft's lead analyst for Sales, Support and Desktop Strategies. "Some of their volume product and price lists, for example, still refer to things that haven't actually been operative elements since about 2000."

He explained: "Some of the price lists will use terminology like 'Open NL,' for example, which means Open No Level, or 'Open without any additional discount for volume.'" When DeGroot started covering Microsoft licensing in 2001, Open Business had replaced Open NL. "But I still see Open NL in some of Microsoft's documentation and lists."

During the current calendar quarter, Microsoft will complete a simplification effort that will hopefully get most of the bogeymen out of the volume-licensing process. Microsoft shortened the physical length of licensing agreements, consolidated the number of agreements based on price and reduced the number of licensing programs from 108 two years ago to 26 today.

"Let's keep whittling away," Sloane said of recent changes. Describing one licensing agreement, she said, "There were five different versions of that contract before—now there's one."

Perhaps related to DeGroot's point: "The language you would see across agreements is [now] consistent," Sloane emphasized.

Microsoft posted new licensing agreements on Sept. 1. Along with simplification changes, Microsoft also clarified terms, such as what customers' rights are in the event of natural disasters. I asked Sloane for clarification, but she referred me to Microsoft's legal department, which makes sense. I expect follow-up on the topic.

8 Million Price Points and Counting
Another factor complicating volume licensing is Microsoft's new millennium product strategy. Since the 2003 product release cycle, Microsoft has expanded its software strategy vertically and horizontally.

Vertically, Microsoft has greatly increased the amount of cross-product feature integration along the desktop-to-server stack. The strategy has a twofold effect on licensing: increased number of pricing SKUs and expanding number of CALs (client-access licenses).

Horizontally, Microsoft has extended new features and broken out existing capabilities into new software versions. For example. Visual Studio .Net launched with a single SKU. Years later, there are four core versions of Visual Studio 2005, plus two Visual Studio Tools versions. The number of Office 2007 versions is eight, up from two core Office SKUs before the turn of the millennium. Excluding Starter and European "N" editions, Windows increased from two versions to five from XP to Vista.

"The number of SKUs we have has significantly multiplied over time, because of the number of products going to market," Sloane acknowledged.

Pricing lists can be daunting when applying the number of licensing programs to the number of SKUs. When factoring in different languages and geographies, volume licensing subscribers must contend with more than 8 million different price points.

Microsoft will hack away at the daunting number of point prices and SKUs next month. The percentage of reductions is impressive:

• Open Value: price points by 50 percent; SKUs by 51 percent
• Open: price points by 32 percent; SKUs by 32 percent
• Select: price points by 51 percent; SKUs by 72 percent

Still, as impressive as the numbers might seem, much of the reduction will come from consolidation, as Microsoft eliminates agreements in multiple languages for different price points and SKUs. The approach, while commendable, doesn't fully resolve the problem created by Microsoft's expanding number of product SKUs and server CALs.

Surely There Is Some Assurance
A third factor increasing licensing complexity is itself complex to explain. Starting with the 2003 product release cycle, Microsoft embarked on a concerted effort to align product development, SKUs and release cycles with Software Assurance upgrade protection. The move meant that some product updates, such as R2 versions of Windows Server 2003 or BizTalk Server 2006, would be included with Software Assurance; nonsubscribers pay as if Microsoft had released new versions. Microsoft extended the strategy to Windows Vista, which made the major business, called Enterprise, version only available through Software Assurance.

The Software Assurance alignment—and to some degree the increasing number of product SKUs—increases the complexity of customer volume-licensing purchase planning and management. Microsoft is trying to reduce complexity two ways by providing a better pricing assessment tool (mainly for partners), shipping fewer licensing CDs and consolidating various licensing agreement Websites under the new Volume Licensing Services Center. The process of consolidating resources will take as long as 24 months, according to Microsoft.

Volume licensing evaluation and management are crucial for Microsoft, because the recurring revenue from Software Assurance annuity contracts is so important to the company's bottom line and broader product strategy. Moreover, Microsoft includes additional benefits, such as training and home use rights, that extend value beyond upgrade protection.

DeGroot described Software Assurance as "a problem. It's a gigantic grab bag of random benefits, many of which most customers won't use, that still manages to not to assure customers of the main benefit—a software upgrade. It was a bad idea to begin with, is still a bad idea, and Microsoft loves it."

If customers don't use those benefits, they might be less likely to renew Software Assurance contracts. Michael Gartenberg, a research director with JupiterResearch, has used the analogy of a health club. If someone gets the membership and doesn't use it, he or she will be less likely to renew.

Sloane agreed that there is correlation between Software Assurance customer satisfaction and use of the benefits. "If they're using at least one benefit in SA, they're more satisfied," she asserted, based on customer surveys.

For years, analysts and IT organizations have complained that volume licensing—particularly Software Assurance—has been more for Microsoft's benefit, and perhaps its partners, than that of businesses. Is change coming?

"We're moving more to a customer model instead of an agreement-centric or Microsoft-centric model," Sloane said. With respect to customer satisfaction: "It's an ongoing commitment."

Related:

• Vista Pushes Volume Licensing, Microsoft Watch, July 26, 2007
• Microsoft Software: Rent Me, Microsoft Watch, July 20, 2007
• Software Assurance Storm Warning, Microsoft Watch, July 9, 2007
• Convergence=Integration, Microsoft Watch, March 12, 2007
• Software Reassurance, Microsoft Watch, February 19, 2007