Microsoft licensing is something the whole channel needs to know. However as some channel players may have already discovered, for something so essential, Microsoft licensing is far from being easy to understand.
There are three basic forms of licensing, the third of which comes in many flavours. They include OEM, Retail and Volume.
An OEM licence is one that is specifically attached to the purchase of a new personal computer. It is most commonly used for the purchase of a PC with Windows pre-installed, although there are also OEM licences available for Office.
Retail is the shrink-wrapped version of a Microsoft product that end users buy in a retail outlet. Up until the early 1990s, this was just about the only way you could buy Microsoft, but now it makes up only a small percentage of total sales.
Volume licensing involves the purchase of multiple licences for Microsoft product, distributed to the customer on a single medium set (ie. disk). The licence basically dictates what rights the customer has to copy the software for its users. Generally prices decrease with the greater the volume of licences purchased. Volume licensing comes in six flavours: Open, Select, Enterprise Agreement, Enterprise Subscription Agreement, Academic and ASP.
Open licensing is targeted at the small business user (businesses with approximately 10-250 users). The price of the licences is determined by the price paid for the initial order (which is a minimum of five licences) and any further quantity of licences purchased for the next two years remains set at that level. So if Jo Bloggs Mechanics purchases six licences at $10 today, under the Open licence model they would continue to pay $10 per licence for any new PCs added to their network that require the software in the next two years.
Open Licensing gets a little bit more confusing when you consider Open Volume, a specific type of open licence that gives SMEs discounts when buying larger quantities of licences. End users earn a certain amount of "bonus points" depending on how many licences they buy in each "product pool". A "product pool" is a group of products with an assigned points value. Examples include an applications pool (Office, Publisher, Project), a Systems Pool (Desktop Operating Systems) or a Server Pool (NT/SQL/Exchange server). If an end user purchases a certain amount of product from a particular pool, they qualify for greater discounts on the purchase.
Select licensing works in a similar fashion to Open licensing, except that the price point is not determined on the first order. The end user predicts the software they will need licences for in the next three years. The price point is then set according to how well the customer sticks to that forecast.
* Enterprise Agreement
The Enterprise Agreement (EA) is a three-year agreement whereby a customer commits to standardising on the Microsoft platform. End users make annual payments on the number of PCs in their network that run Microsoft's core products for access to the latest versions of Microsoft products over the three-year term. The end user is licensed for whatever versions of the products are released in those three years.
The EA used to have a minimum of 500 PCs, but under the recent changes to Microsoft's Licensing program, this minimum has been reduced to 250.
* Enterprise Subscription Agreement
Unlike all of the options discussed so far (OEM, Retail, Open, Select and EA), the subscription license only allows you to use a product for the term of the agreement. End users must delete the software once the agreement is ended. The option was added in response to several end users that wish to rent rather than own the software asset for taxation reasons, and to ensure they only pay for the number of PCs using the software.
The academic licensing is similar to the Open and Select options, but involves cheaper price points for authorised educational institutions.
* ASP Licensing
A licensing option the industry was screaming for, and came a little too late for many ASPs to make a go of it. It basically involves separate pricing structures for those end users that rent the software over a network from a service provider.
The future of licensing:
The vendor's recent changes to its licensing model can only result in an easier structure for the future. But the transition period is going to be a messy ride.
For starters, the vendor has decided to apply consistency across the terms of its licences (ie. duration of licences, points value of products) to make each option easier to compare. Vogler admits that many customers were confused as to which licence was best for them and which they met the criteria for.
The main thrust of the changes, however, is to support the concept of "software as a service", which sees enhancements to the technology being made via downloadable components/modules as end users see fit, as opposed to outdated upgrade options, which are to be phased out.
In the future, Microsoft will provide licence holders with the additional option of "Software Assurance". This involves applying "maintenance" to a product - customers pay for the perpetual use of any upgrade that was released during the time of the agreement. Software Assurance will be charged as a percentage of the licence price, which currently stands at 29 per cent for applications and 25 per cent for server products. It can only be purchased by customers purchasing or using the latest versions of Microsoft products.
Originally, software assurance and all the changes to the licensing model (Licensing 6.0) were due to come into effect by October 1, 2001. Customer feedback has since pushed that back to February 28, 2002, and again to July 31, 2002 to accomodate the fiscal cycle. Customers complained that they had just spent a good deal of money purchasing products such as Office 2000, and wanted that product deemed "current" under the new system despite the release of Office XP.
To satisfy these requirements, Microsoft has added "Upgrade Advantage" as an option for the transition period on Open and Select licenses. It is the combination of a one-time upgrade with maintenance for that version. It is designed for customers that are not on a current version of a Microsoft product.