Forced march

• Article 19 of 77
• Information Age, October 2001
• View the original article online

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No one buys a car and expects to be told, three years down the line, that if they want to keep using it, they need to pay for it again. Nor do they expect to have to buy a new car to maintain compatibility with other cars, or to be able to use the roads. Yet many software vendors seem to expect customers to continue paying for something they already own or to buy additional pieces of software they do not need.

Microsoft, with its desktop monopoly on operating systems and office productivity suites, is the company most often accused of forcing customers to buy products they do not want, although other software suppliers also enforce upgrades on customers. But, now that Microsoft has a new operating system and new version of Office – Windows XP and Office XP – can companies refuse to upgrade?

For the consumer, the case for upgrading to XP is clear: for a few pounds more, they can enjoy the stability of Windows NT 2000 while maintaining most of the compatibility with the older programs and hardware of Windows 95.

But what is in it for the corporate customer, who is already using Windows NT or 2000?

“There are three areas where it makes a difference,” argues Microsoft's product manager for Windows XP, Neil Laver. “Ease of use and management, compatibility and collaboration.” XP, Laver claims, has far more backwards compatibility with earlier DOS and Windows programs than its predecessor. It also has a built-in firewall, the ability to restore an entire PC back to previous settings, and driver and application signing to prevent unapproved software or hardware drivers being installed. Meanwhile, mobile users will be able to access their desktops over networks or the Internet.

But top of the list for corporates is the improved Windows messaging system for collaboration, which includes communications support for voice and video over IP, and applications sharing. “Features involving working together are the main thing,” agrees John Handby, chief executive of CIO Connect, a forum for CIOs. “But customers are becoming increasingly restrained. We've got Windows 2000, which has pretty good stability. The onus is on Microsoft to show a number of things are really valuable. It needs killer apps.”

The Gartner Group's research backs up Handby. Although “Windows XP is Microsoft's latest and, likely, best OS,” argues Michael Silver, of the group's end-user division, “enterprises already upgrading to Windows 2000 should continue the process.” Companies that were planning to migrate to Windows 2000 in 2002 should, however, consider skipping 2000 and move to XP instead.

XP does have reasonably high hardware requirements: 64 megabits (MB) of RAM and a Pentium III processor are the minimum a PC needs to run the operating system. A PC running Windows 2000 will almost certainly have at least that configuration, but one running 95 or 98 is unlikely to have the speed or power to run the new operating system: an upgrade to XP will almost certainly mean a new PC in those cases. But, while XP may be good, is it really that good?

Decisions, decisions...
Microsoft faces a dilemma: how does it encourage people to upgrade to the new operating system when the only customers who will really benefit will have computers that are too old to run it? Like Oracle, IBM and other vendors, Microsoft has relied on the phasing out of support for older products to encourage upgrades; and many corporates feel the need for support for these vendors' core products, so upgrade in order to retain that.

And file formats also undergo regular changes: With each version of Office come a few new tweaks to the Word and Excel file formats. Companies with an earlier version find it hard to use the files they receive from people using the new version, and Microsoft's competitors find it hard to include translators that will convert documents into their own suites' formats, making their packages less attractive to companies looking for an alternative to Microsoft.

“Theoretically, there is a 'do-nothing' option,” says David Roberts, chief executive of The Infrastructure Forum (TIF), a group that represents the views of large customer organisations to the IT industry and government. “But that is only temporary. Even small businesses can only survive on their existing software for a while. But we live in an environment where we have a high dependency on software. All the software from third parties will be upgraded sooner or later so that they require Microsoft's latest OS. So you can do nothing for six months, or even 12, but you will have to upgrade [eventually].”

Indeed, Microsoft's own products have a tendency to require the absolute latest operating systems to run. Exchange Server 2000 and the SQL Server 2000 database, for example, only run on Windows 2000 because they need access to Windows 2000's Active Directory services, whereas their predecessors ran on NT 4.0. To obtain the extra capabilities of SQL and Exchange Servers 2000 – which included bug fixes for their existing products – users had to upgrade to Windows 2000, even though NT 4.0 worked well for them. In fact, one of the selling points of Windows 2000 itself was the “tens of thousands of bug fixes” to NT 4.0 that the product incorporated.

But even that is not enough to encourage companies to upgrade.

Development company Wind Gap Technology Group provides IT services to a Fortune 500 company that is rolling out Windows 2000 desktops around the world. According to John Murdoch, a Wind Gap consultant, this company is not even piloting XP. “All XP gives you is some easily ignored bells and whistles, and the ability to use joysticks,” he says. “Microsoft wants them to upgrade, but can't make a compelling case for a whopping upgrade expense, plus the cost of actually installing the OS, labour, and so forth, in a time of tightly trimmed budgets and layoffs. A senior manager said to me, 'We just announced we're whacking 200 people. If we spend three million bucks installing XP, we're going to have to whack another 40. Is the ability to use a joystick worth those people's jobs?'”

The problem is not confined to Windows XP, though. Eight out of 10 users do not plan to upgrade to Microsoft Office XP for at least another six months, according to a recent survey; a third of respondents said they would never upgrade; and half of those that do not plan to upgrade say they are happy with their current version of Office. According to CIO Connect's Handby, “a lot of companies don't use the capabilities they have right now. People email extensively, use spreadsheets and word processing. Why should they want to upgrade to another product whose functions they are not going to use?”

Microsoft has seen the problem coming for some time and, in May 2001, announced its solution. It was going to “simplify” its licensing, a simplification which came into effect in September. Companies can now choose one of two options: buy full licences for all their future software – albeit at a reduced price if they take out a volume licensing agreement – or rent software via an annual subscription service called Software Assurance (SA). SA is approximately 25% of the price of a full licence for a server product and 29% of the price of a desktop product, and gives the purchaser the right to use the current version of a product for a year. But for an organisation's existing software to qualify for SA, they have to be using the latest version: for Windows, that is Windows XP and for Office, Office XP.

Microsoft claims its new licence schemes simplify the existing system and will prove to be the same price or cheaper in most cases. “Based on our volume licence purchases across all products, this may represent a price increase for 20% of licence purchases – those who update infrequently,” claims Microsoft's UK licensing manager Duncan Reid.

Customer mutiny
But not everyone sees it the same way – especially users. “As a result of the recent price increase and change in licensing, we were forced to commit unbudgeted dollars this year towards maintaining the products that we have,” says Lloyd Love, vice president and CIO of AMCOL International Corporation, an international mineral supplier. “We will focus on alternatives to Microsoft products before [we consider] moving forward with any new products from Microsoft.”

George Ryerson, director of information technology for WestFarm Foods, accuses Microsoft of adjusting “its upgrade/profit strategy at the expense of customers.” Until there is a value proposition, he says, WestFarm will not change to XP.

TIF's David Roberts says that no company in his membership is expecting costs to decrease as a result of the change in licensing. “As far as we can tell from our members, it will be a 94% increase in cost for any company – certainly any organisation with 250 or more desktops. Unfortunately, most organisations don't know it.” And David Rippon, chairman of Elite, the British Computer Society's specialist forum for IT directors and senior managers, estimates that the total cost to the UK economy of Microsoft's licensing changes will be £800 million per year.

“Gartner believes Microsoft confuses simplification with the elimination of options,” note Alex Bona and Alvin Park of the Gartner Group's software asset management division. “Either way, most enterprises will pay much more.” Gartner estimates that medium-sized businesses that upgrade software every three years will pay anywhere from 33% to 77% more under the new plan than they did before, while those that upgrade every four years will see prices rise between 68% and 107%. Only those that upgrade every two years will see a drop in costs of approximately 19%. Gartner recommends that companies that upgrade every three years should subscribe to SA, while those that upgrade every four years or more should re-buy the software when they decide they cannot go without the latest version.

Despite the unpopularity of the change in licensing, Microsoft has refused to climb down. TIF has asked the UK's Department of Trade and Industry (DTI) to investigate Microsoft's new agreements, and the complaint is being investigated by the Office of Fair Trading. Elite has also written to the DTI, and has met with Microsoft to put its complaints across.

“Basically, Microsoft ignored all these complaints and said it's going to happen anyway. We'll be replying once more, but to be honest, I don't think we're going to get anywhere,” explains Elite's David Rippon. TIF's meeting with Microsoft was equally unconstructive. “They started it as though we were wrong. [They felt] how could we come to such a conclusion?” recalls Roberts.

In the short term, it looks like Microsoft will have its way and a majority of companies will sign up to SA. However, as Roberts warns, the new licences have “elevated the problem to the status where board rooms are aware of their own dependence on Microsoft products and their pressure on costs. The natural reaction is to start looking for alternatives. There may not be any now, but in five years time... Businesses are not going to take this sort of treatment lying down.”

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