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Resistance to Licensing6.0 Hits the Bottom Line for Microsoft

Marcelo Prince in The Wall Street Journal reports on the increasing signs that Microsoft may have overplayed its hand in introducing its new licensing scheme, Upgrade Advantage. This plan is one of the first implementations of the ’software as a service’ model in a situation outside of the ASP (application service provider) space. The concept is that you pay Microsoft annually for the use of the software, moving away from the notion of buying rights to use a particular version as a one-time charge. Microsoft finance chief John Connors discusses the slow going:

“We have a $1.1 billion hole from Upgrade Advantage that we’ve got to fill going into” the fiscal year that starts July 1, Mr. Connors told investors at meetings Tuesday and Wednesday that were Webcast. As for how many customers will choose to renew, Mr. Connors said, “If it were 10%, we would be disappointed. If it were higher than 30%, we would be very surprised.”
Many customers will opt to simply buy one-time software licenses rather than pay extra for subscription plans that give them the right to product upgrades because new versions of Office and Windows are several years away, some analysts say.

This comes in robust contrast to the situation back in 2002, when Microsoft results doubled quarter-over-quarter (July to September $2.7bn) when the first incarnation of the program was first announced. The program offered two flavors - annuity model Software Assurance and supposedly limited-time offer of the transitional Upgrade Advantage. The scheme proved so confusing to customers that IT consulting firm Gartner put up a mini-site devoted to explaining the intricacies and advising the proper course of action.
As a historical note, the Upgrade Advantage mentioned above as performing poorly was originally slated to close September 30, 2002 and is still continuing…

Sources: WSJ.com -
Microsoft Says Revenue Growth Will Be Harder, Guardian article Software lock-in helps double Microsoft profits 10-18-2002, and Gartner’s mini-site for Microsoft Licensing issues and a good blog on the topic