Analysts say Microsoft enterprise licensing still challenging

Despite efforts from Microsoft over the years to simplify its software licensing for businesses, a new analyst report said it's more complex than ever for companies to figure out the most cost-effective way to acquire products from the vendor.

A new report by Directions on Microsoft analysts Paul DeGroot and Rob Horwitz called “5 Reasons Why Microsoft Licensing Is Hard” claims that Microsoft licensing isn't likely to get any easier any time soon, mainly because Microsoft is not motivated to make it so. The report is available online and is connected to a series of “boot camps” the firm hosts to help companies get up to speed on Microsoft licensing.

“Microsoft doesn't think there's a problem,” report co-writer DeGroot said in an interview Wednesday. “The money keeps rolling in … Microsoft looks at the numbers and the reality is that most customers don't have a choice.”

Indeed, in a talk at the Citi Annual Global Tech Conference on Wednesday, Microsoft CFO Chris Liddell did not report anything amiss with enterprise licenses that were up for renewal earlier this year. Many companies sign these multiyear contracts to purchase software from the vendor.

Liddell reiterated what Microsoft said on a July conference call reporting fourth-quarter fiscal 2009 earnings — that enterprise license bookings were more or less the same as they've ever been. “It's clearly a tough economic environment, so we're incredibly happy the renewal rate was in line with what we've achieved historically,” he said.

If this remains the case, there is no real impetus for Microsoft to change its licensing, which remains difficult to understand for companies beyond the largest enterprises that have dedicated staff members to handle contracts, DeGroot said.

In fact, changing the licensing would require an investment from Microsoft and would cost the company revenue, further discouraging Microsoft from simplifying its licensing, according to the report.

Though there are many reasons for the complexity, DeGroot narrowed it down to a few major issues. One is that Microsoft's licensing programs have evolved over the years to suit the needs of different types of companies as issues arose, but no one has ever gone back to revise the myriad programs to streamline them to help companies figure out what might be best for them.

“There's this evolution of Microsoft programs and they rarely kill a licensing program — so you'll have a licensing program that is 15 years old that is still there,” he said.

This has resulted in a mass of outdated programs with more exceptions than rules to them, so it's a morass of complexity for most customers to slog through, DeGroot said.

Microsoft also has misleading labels on its licensing programs and markets them according to what will be easiest and most cost-effective for the company and its resellers to handle, not according to what provides the most value for customers, DeGroot said.

For example, he said Microsoft's enterprise agreements (EAs) — which are for Microsoft's desktop software, Windows and Office — might make sense even for small companies that only have about 250 desktops and are not technically considered “enterprise” customers. However, those companies might overlook EAs as an option because of the labeling.

Furthermore, Microsoft markets its Open License program to small companies, which often don't have dedicated staff on hand to examine licensing contracts, DeGroot said.

While it's true signing up for the Open License program might be easy for them, customers get only 20 percent discounts on products versus 40 percent, which is what some other programs offer, he said. But neither Microsoft nor a reseller would want to explain to a small customer that isn't spending a lot of money on software how they can save more with a different license.

“The customer is not getting the best deal,” DeGroot said. “The complexity of the thing makes both Microsoft and the reseller disinclined to explain to the customer how they can save more money.”

DeGroot said he doesn't believe Microsoft is willfully trying to mislead customers with its licensing, but since the company itself has never been in the position to have to license its own products, the people in charge don't really understand what customers are going through.

Unfortunately, the situation is likely only to get worse as Microsoft begins combining subscriptions to hosted services with its traditional per-CPU licensing models, he added. “My very distinct impression is that licensing is getting more complicated,” DeGroot said.

And despite Microsoft's rosy view of things, he said that some enterprise customers have chosen not to renew their contracts this year because “the customer doesn't understand the value of what they bought or how they bought it,” DeGroot said.

“If you're in a company and you don't understand why you're paying someone money, you're inclined to stop paying,” he said. However, until a critical mass of customers comes to the same conclusion, Microsoft will not be motivated to change its course, DeGroot added.

In an e-mailed statement through Microsoft's public relations firm Wednesday, Stacie Sloane, a director of licensing at the company, said Microsoft has made “significant strides over the past few years in balancing customer choice with flexibility” to simplify its licensing agreements and reduce the number of programs from 74 to nine.

She said the company also has provided new tools to help customers navigate the complexity of its licensing, including Online PUR, a way to search on the Web to find out about software use rights in Microsoft's licensing programs.

“We continue to look for ways to make the purchasing experience simpler for customers, including our current multi-year investment to ultimately shift the customer experience to one purchasing platform and a single agreement for any type of offer,” Sloane said.