Analyst: Microsoft’s Windows 7 license numbers misleading

A former Microsoft employee and prominent analyst warned the financial community not to be misled by Microsoft's claims about early corporate adoption of Windows 7.

Microsoft said this week at its annual Worldwide Partner Conference that it has already licensed 51 million desktops for Windows 7, which won't be available to business customers through its volume-licensing program until Sept. 1.

However, Rob Horowitz, the founder and CEO of analyst firm Directions on Microsoft and who worked at the company for eight years, said that many of those corporate licenses are likely tied to its existing enterprise-agreement contracts with customers and don't represent any specific interest in the new OS.

“When Microsoft says it has 51 million seats already for Windows 7, that's probably 51 million PCs covered by enterprise agreements,” he said, speaking to financial analysts on a conference call hosted by Citibank.

On the call, Horowitz discussed the mechanics of Microsoft's volume-licensing, enterprise agreement (EA) and Software Assurance (SA) programs, which large corporate customers use to purchase Microsoft software.

The SA program provides software updates and other extras to corporate customers that purchase software in high volumes. Companies that want the enterprise version of the Windows client OS must purchase SA to get it, and SA is a part of EAs, which cover all the licenses needed to deploy Windows and Office across corporate desktops.

Though companies do get automatic software upgrades through SA, the update program is not the main draw for customers to purchase EAs, Horowitz said.

Rather, companies sign EAs to avoid any complexity later if Microsoft decides to audit them to ensure they're paying for every desktop using its software, he said.

“It's a huge pain to show you have enough licenses to cover your use,” Horowitz said. With an EA, customers need merely to count their desktops each year, tell Microsoft how many they have and then pay for those desktops, he said.

In fact, many customers don't even update their desktops to the latest software they receive through SA, even if they get it under the terms of their contracts, Horowitz said. This was certainly the case with Windows Vista, which was not popular with many enterprises, which opted to continue using Windows XP instead.

It's hard to tell how Windows 7 will fare with corporate customers beyond those who get the product through an SA contract, which doesn't necessarily mean they will use it.

Early reports have mixed projections for how well Windows 7 will do in its early days. Research firm IDC is predicting 177 million Windows 7 PC shipments by the end of the year, but that represents a mix of corporate and consumer users. Following its September release to volume licensing, the OS will be available to everyone on Oct. 22.

Another report published Monday predicts adoption by businesses could be sluggish. A survey based on feedback from 1,000 IT administrators and conducted by ScriptLogic found that nearly 60 percent of businesses don't currently plan to adopt Windows 7. ScriptLogic provides network administration software for Windows-based networks.

A representative at Microsoft's external public-relations agency said she would look into issues regarding Windows 7 adoption that Horowitz raised. No one was otherwise immediately available to comment.