Where's the Plus in Select Plus?

Companies, like people, have character flaws. With licensing, Microsoft consistently overstates the benefits while understating shortcomings and consistently talks about simplifying the contract process while creating yet more programs that only increase complexity. So, I decided to not blog at midnight EDT so that I could see the full published information and get some feedback from analysts.

In a nutshell: Microsoft is introducing a new licensing plan called Select Plus, which will be available on Oct. 1. Major differences from Select:

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

Deciphering Select Plus should be an easy process, but it's not, because there is a fundamental contradiction between Microsoft and its customers with respect to software licensing. Microsoft's primary objective is to sell more software and do so by locking a customer in to as long a contract as possible. Analyst surveys consistently show that IT organizations rank interoperability and standardization as top priorities. Meaning: Install it and leave it for as long as possible. Microsoft wants customers to buy more, while the IT organizational priority is to stick with what works for as long as possible.

So Microsoft has tacked on all kinds of "extras" as incentives for volume-licensing adoption, particularly Software Assurance being added onto Open and Select agreements. The company will talk about meeting customer priorities, but the first benefit will always be to Microsoft, because the primary objective is to sell more software. To be clear, I'm not making a value judgement, just cutting through the marketing crap. First benefit: Microsoft.

Who Benefits Most?
Yesterday afternoon, I spoke with Chris Blackley, a director in Microsoft's Worldwide Licensing and Programming group, about Select Plus. He described the new plan as "directly related to customer input" that started two years ago.

"Our licensing programs typically get used in conjunction with each other," Chris said. This is particularly true of large multinational companies with Enterprise Agreement covering the core organization and Select used for the branches. Chris cited one customer with 120 entities and 900 contracts.

"Select Plus is really intended to sign a single enterprisewide agreement," he said. "Rather than fragmenting over 900 contracts, they can aggregate into a single agreement. It's an evergreen agreement, so it has no expiration date once we get out of that three-year [contract] cycle."

Chris said customers want "improved license management" and Select Plus is a good way to get it. At a simple glance, that's what Select Plus delivers.

Gartner analyst Frances O'Brien explained: "The biggest benefit of Select Plus is that clients will be able to consolidate buys under one main contract using a parent-child relationship structure. So from an asset management perspective, it will give clients a broad view of their license entitlements across the organization. It will also extend companywide volume-based pricing to affiliates that may not have had it in the past because they were signed up under their own agreements."

But after pressing Chris during yesterday's interview, reading the small amount of information provided by Microsoft and getting feedback from analysts, I question how "improved" Select Plus is. The problem is the same I have consistently encountered with new Microsoft volume-licensing changes: overstated benefits and understated cost considerations (not necessarily outright increases, but still bigger spending).

The best past example is Software Assurance, which Microsoft announced in May 2001. The company stated that the program would save customers at least 20 percent on upgrades. But the savings applied to businesses upgrading software every two years, which wasn't how often most enterprises deployed new versions—or how often Microsoft delivered them. Rather than savings, Gartner found that most businesses would see software licensing costs increase anywhere from 33 percent to 107 percent.

Three Years or Bust
Chris couched Select Plus as simplifying licensing management by consolidating contracts and aligning expiration dates. "Every single element they purchase for the full 36-month term," he said. That's one way to align expiration dates, I suppose.

But Frances observed "two negatives," one affecting expiration dates, stemming from the contracts being evergreen. "Instead of having one renewal date, companies will have multiple renewal dates. Select is already administratively burdensome compared to an EA. Multiple renewal dates could exacerbate that."

I'm honestly a little confused by Frances' take with respect to Chris' position. Chris and I discussed expiration dates at length yesterday, because I didn't quite get how the alignment occurred. The confusion relates to Frances' second negative.

"Only option for purchasing Software Assurance is for three years," Frances said. "In Select I would just purchase SA for the remainder of my agreement. So if it was Day One of Year Three of a Select Agreement, I could license just one year of SA."

Under Select, Software Assurance cost is prorated to the contract's prior anniversary date. There is no proration under Select Plus; the commitment is 36 months. Chris characterized the change as good for license management and for situations where Software Assurance was acquired late in the contract period.

But I see that as overstating the benefit. True, a company buying Software Assurance on a new license 10 months before Select contract expiration would pay for one year. But under Select Plus, the commitment is automatically three years.

There's big upside for Microsoft. A Microsoft slide deck on the new program states that "customer research suggests SA customers will buy 5 percent to 30 percent more SA on Select Plus." First benefit: Microsoft. Technically customers don't pay more as an annual percentage, but many would pay longer.

"Although there is no price increase associated with the Select Plus program, some clients may perceive the three-year SA requirement as such," Frances said. "To them I would say, just stay in Select."

What to Select?
Who else should stick with Select, or perhaps more appropriately Enterprise Agreement? In Microsoft's statements about the benefits of Select Plus, I struggle to see why an organization wouldn't switch from an EA if license management is supposed to be that much easier.

Chris was quick to shoot down that kind of thinking. Microsoft doesn't want any business giving up its EA (he didn't say that). Chris said most organizations had an Enterprise Agreement covering the home office and Select agreements for subsidiaries or branch offices. The company expects enterprises to replace Select with Select Plus, to reduce number of contracts and to simplify licensing management.

So I asked: Why not just make the existing program easier? Shouldn't Enterprise Agreement be an agreement that covers the whole enterprise? Chris didn't give what I consider to be a satisfactory answer.

What I will be looking for and what I encourage IT organizations to look for are the hidden costs. For example, what will three years of Software Assurance cost the company now and in the future versus a shorter-term commitment? What will pricing look like in Year Four on terms set at the start of the evergreen contract and modified based on software buying? If you estimate a certain level of purchasing but come up short, there will be financial consequences.

Microsoft's business is to sell stuff. The company isn't going to broadcast the negatives. IT organizations must do their own research or consult other organizations or analysts. Licensing is messy, and Select Plus won't change that.