Microsoft tries again to streamline volume pricing

Latest move by Microsoft to improve and simplify product licensing terms

Microsoft has unveiled a new program that allows its larger customers to combine separate product licensing agreements under one master contract, which could help them to get bigger volume discounts.

The move, announced Tuesday, is another step in a series of changes intended to improve Microsoft's product licensing terms and make them easier for companies to navigate.

The new Select Plus program is an upgrade to Microsoft's existing Select volume-licensing program. Select Plus allows customers who have multiple purchase contracts -- at different departments in a large company, for example, or even in different countries -- to combine them all into one master contract, said Chris Blackley, a director with Microsoft's Worldwide Licensing and Pricing Group.

This will allow customers to "aggregate" all of the purchases they make and "drive a higher volume discount," because the combined amount purchased will often put them into a different licensing class, he said.

Duncan Jones, an analyst with Forrester, said he knows many companies that have not been able to take advantage of volume-license discounting from Microsoft because licenses have been dispersed across the companies' different business units.

Select Plus now gives them an opportunity to take advantage of this benefit, he said.

"Now all they have to do is sign up [to Select Plus]," he said. "The business units can still decide what they want to buy and when they want to buy it, and the enterprise will automatically get the volume discount. It's much simpler for that kind of company."

Microsoft puts customers into different licensing classes depending on how much software they purchase, and the discounts they get -- which are often negotiated with authorized Microsoft resellers -- range from about 10 percent to 25 percent depending on the licensing class the customer is in.

Select licensing members with 250 or more desktops can migrate to Select Plus when any one of their contracts with Microsoft comes up for renewal. Other contracts can then be added to the Select Plus contract even if they haven't expired yet, Blackley said. There are no fees associated with moving from Select to Select Plus.

With Select Plus, Microsoft is also changing the way that Select license agreements relate to Software Assurance (SA), Microsoft's oft-criticized software maintenance and upgrade program.

SA is a three-year license agreement. But if customers sign up for SA six months into the year of a Select contract, they still pay for the whole first year of SA, along with the two subsequent years. Microsoft does not pro-rate SA for any contract time lost under Select licensing, Blackley said.

Select Plus does not work that way. A customer will now get the entire three years of SA -- for the same price as a Select licensee would pay for an abbreviated agreement -- no matter when they sign up for SA, Blackley said.

It was criticism from customers that led to the changes Microsoft is making to SA with Select Plus, Blackley said. "Customers were very vocal on that and we're trying to fix it," he said.

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Another aspect of Select licensing that is different in Select Plus is that Microsoft has eliminated the forecasting element of the license. In Select licenses, customers would have to forecast what they were going to spend with Microsoft over the next three years to determine their volume-discount level.

If they were to underforecast and end up making a larger purchase, they would have to sign a new contract to get the higher volume discount, Blackley said.

In Select Plus, the discount level is set based on the customer's actual purchasing over the course of the year, he said.

This also means that new customers who sign up to the program would get discounts on the back end at the end of the year, rather than upfront when they purchase. However, since many customers signing up for Select Plus are already Microsoft customers, their spending and thus discount level can be determined by their existing purchasing, Blackley said.

Microsoft has been tweaking its licensing programs for several years because customers have complained about how complicated it is to buy multiple products with different licensing structures. However, Microsoft risks making its licensing terms seem even more complex with all of the changes the company has made.

Forrester's Jones said that the research firm sees "a regular full house" in its training workshops for helping companies navigate the complexity of Microsoft licensing.

"I think there is a lot of demand from people like us to explain it all to them," he said.

Traditional software licensing in general faces pressure from changes in the industry, with some products being licensed on a subscription basis rather than through multi-year contracts.

Microsoft is adapting to these changes by offering some of its business software on a subscription basis, but it still has a legacy of traditional software licensing to contend with as it makes the transition.