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Microsoft Is No Softy

It looks like Gates and Co. are playing hardball with Licensing 6.0. Is it worth it?
Magazine Contributor
2 min read

This story appears in the January 2003 issue of Entrepreneur. Subscribe »

Microsoft instituted a new licensing strategy August 1, and businesses are howling.

Microsoft Volume Licensing 6.0 affects bulk discounts on Microsoft products-operating systems and such applications as Office. Under Licensing 6.0, customers get the steepest discount only if they upgrade from the most recent version. For example, upgrading from Windows 98 to Windows XP costs more than upgrading from the Windows Millennium Edition. Previously, customers paid one price regardless of how old their version.

In a recent Yankee Group/Sunbelt Software survey, 64 percent of respondents still had Windows 98 on some of their desktops; one-third still used Office 95 or Office 97. Most respondents who had calculated a move to Licensing 6.0 estimated it would increase licensing costs by more than 30 percent. Adding to the costs, products such as Windows XP also require faster hardware.

Microsoft is mixing incentives with threats to win converts. On a positive note, the software behemoth is using some of its enormous cash hoard to create software financing programs for small businesses. One program, for example, lets you finance software purchases of up to $150,000 interest-free for 24 months.

But then there's the bad cop. One-third of survey respondents said when they expressed hesitancy at signing up for Licensing 6.0, Microsoft salespeople either alluded to or outright threatened an audit by the Business Software Alliance (BSA). Even if all their products have been purchased legitimately, few small firms have the rigid inventory of their licenses that a BSA audit demands. Rather than risk fines, they're capitulating-and grumbling.

Fortunately, there are alternatives. "Small-business owners are most vulnerable to the Linux, StarOffice and Mac OS X pitches," says Laura DiDio, an analyst at Boston research firm The Yankee Group.

Ernie Ball Inc., a San Luis Obispo, California, guitar strings-maker, was hit with a BSA audit two years ago. Microsoft then held up the company as a bad boy in local ads-despite 98 percent compliance. Company CEO Sterling Ball told IT manager Jeff Whitmore to make Ball Microsoft-free. In came Linux and Sun Microsystems' StarOffice.

"We've done business without Microsoft Office for two years," says Whitmore. Although the move predated Licensing 6.0, Whitmore says the firm saved $80,000 by not upgrading to Windows XP.

Microsoft admits to Licensing 6.0 problems. "[CEO] Steve Ballmer has announced that we need to look at it again for small business," says a Microsoft spokesperson. When Yankee's survey says almost 80 percent of your customers don't like what you're doing, that's a wise move.

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