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Microsoft's New Software Subscription Service

By RadiantMatrix in Technology
Sat May 12, 2001 at 12:03:17 AM EST
Tags: Software (all tags)

We've been hearing about Microsoft's plan to move to a subscription service instead of selling their software outright. According to CNET News, the rumor is a reality. In the article, titled New Microsoft Licenses May Increase Costs, CNET points out both the benefits and the flaws of the new program in terms of upgrade cost. However, cost of upgrade is only one way of viewing the issue.

What does this new service mean for the average business? Will the penalties for delayed upgrades cause business to upgrade more frequently, or abandon MS products entirely?

To summarize the CNET article, Microsoft's new arrangement will save businesses between 2 and 19 percent over current upgrade cost -- provided they upgrade every two years. If you upgrade at the 3-4 year level (as is typical for many businesses, especially smaller ones), the cost will be up to 107% more than current upgrade methods.

This would be all well and good if Microsoft were merely creating another option for customers who upgrade frequently. However, according to the CNET article, the older methods of upgrading (i.e. buying an upgrade when desired) will be tanked in favor of the new subscription service. Even the increase in cost aside, smaller businesses will be adversely affected by this move on Microsoft's part.

Subscription services do have a positive side -- for the vendor, revenue is spread out and considerably more stable; for the customer, upgrades come at more reliable intervals, and cost is spread out over several years. However, the model that Microsoft is moving to has several glaring problems. An increase in cost to the customer in order to spread out the payment is hardly something new -- however, an increase of 107% will certainly raise some eyebrows. Of course, since more frequent updates actually save money, organizations will be forced to stay current. This, however, has its own problems.

More frequent upgrades cost money in terms of manpower, education, hardware upgrades, and time to solve the problems that nearly always crop up when upgrading. Also, since the disparity in cost between a 2-year and 4-year upgrade cycle is so high, customers will demand that upgrades be available on the 2-year cycle. This adds a significant crunch to the development cycle of products that are already rushed to market. It also encourages the addition of new features -- even when they are not needed or requested. The end result is software that is bloated, increasingly unstable, and needlessly buggy.

Of course, the positive side to this, from the Open Source point of view, is that smaller businesses now have extremely compelling reasons to seriously consider non-Microsoft alternatives. Of course, there is another side to that coin as well -- with each upgrade, MS will likely change protocols and file formats just enough to break compatibility. This means that maintainers of Open Source products that must communicate with Microsoft products will be hard-pressed to stay on top of the changes.

So, what do you think? Is the subscription service from Microsoft a good or bad thing? What can a business do to avoid the increases in cost that this will doubtless bring?


Voxel dot net
o Managed Hosting
o VoxCAST Content Delivery
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MS's Subscription Service...
o Brilliant! All hail MS! 4%
o Sound decision 4%
o Won't change much 5%
o Poor decision 26%
o Idiotic! Death to Gates! 16%
o Who the hell cares? I use alternative products! 43%

Votes: 140
Results | Other Polls

Related Links
o CNET News
o New Microsoft Licenses May Increase Costs
o Also by RadiantMatrix

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Microsoft's New Software Subscription Service | 35 comments (24 topical, 11 editorial, 0 hidden)
This will never work (4.50 / 10) (#7)
by FlightTest on Fri May 11, 2001 at 02:17:21 PM EST

I find it fascinating they call it a "software assurance" contract, when all it seems to assure is a steady stream of money to MicroSoft. Maybe they should call it a "revenue assurance" contract.

I don't see anything the in article that MicroSoft is committing to producing ANY product upgrades for the contract term. It reads more like "IF we decide to produce an upgrade, you get it free, if we don't, too bad". What a deal. Can I publish a magazine this way? Pay me for a year's subscription. If I decide to produce an issue in that time, you get it for "free". Otherwise, you get nothing. And it's not like MS has a good track record of actually releasing software on time. Even worse might be if they DID commit to a schedule. By god, SOMETHING would ship on the schedule date, tested or not.

Actually, I think the words "software assurace" were chosen very carefuly. At first blush, it sounds like "You are assured of having the latest software". But I think the label is actually refering to assuring the legality of licences, not assuring anything about the software itself. Towards the end of the article, the MS rep starts talking about it as "... a software asset management model that is actually practical and usable compared to the current model," even for small businesses. In other words, MS is positioning this as a tool to insure you have a legal licence for every copy you have.

Why did I flip? I got tired of coming up with last minute desparate solutions to impossible problems created by other fucking people.
It already has worked. (3.33 / 3) (#15)
by Rasvar on Fri May 11, 2001 at 04:45:45 PM EST

I work for a BIG enterpise level user of MS systems. In the last three days, our corp headquarters has killed a number of big projects to push Win2K. These were sudden decisions that just so happened to coincide with this info coming out. Considering we have over 150K Win NT 4.0 systems. This is going to be a major headache.

[ Parent ]
My bad (3.00 / 3) (#16)
by FlightTest on Fri May 11, 2001 at 05:21:10 PM EST

Of course you're right. Of course it will work. As long as IT decisions are made by PHB's (i.e. forever), companies will continue to buy whatever MS tells them to buy, however MS tells them to buy it.

What ever was I thinking? I really should know better by now.

Why did I flip? I got tired of coming up with last minute desparate solutions to impossible problems created by other fucking people.
[ Parent ]
Further reading at The Register (4.14 / 7) (#8)
by xdc on Fri May 11, 2001 at 02:19:57 PM EST

After discussing Microsoft's new volume licensing scheme, The Register offered further analysis on how this could inflate Win2K/XP sales. These two articles provide good supplemental reading on this topic.

Great News (3.28 / 7) (#9)
by jude on Fri May 11, 2001 at 02:23:50 PM EST

Just means that Microsoft will nickel and dime themselves out of existence sooner. Accelerates the interval it takes for the bulk of people to recognize the fact that they've been cheated by Microsoft for years. Hardware that operates like their software is promptly returned for replacement or refund. Through some deft flimflam, however, they have perenially avoided that responsibility so far. People are starting to wake up, though, and a sharp pinch in the wallet will only wake them up further.

Doubtful. (3.50 / 2) (#20)
by claudius on Sat May 12, 2001 at 10:20:22 AM EST

Just means that Microsoft will nickel and dime themselves out of existence sooner.

This is highly doubtful in my opinion and my experience in the much-celebrated "real world." Microsoft products are just good enough, just flashy enough, just easy enough to use, and the alternatives are just flaky enough that managers by-and-large will opt for their continued use over the alternative, which is switching full-bore to Open Source solutions. Besides, there are a few niches for Microsoft where there is simply no viable Open Source alternative (e.g. Powerpoint). Maybe a miniscule startup is nimble enough to absorb the expense of such a switch, but the cost of a change to any large institution with a huge investment in Microsoft would be far too prohibitive. Just what is one supposed to do when confronted with 150000 Word and Excel documents that need to be accessible under the new solution? Even if the Open Source solutions were somehow superior, there is no way that a seamless conversion of all existing Office documents could be arranged.

What will happen is companies will continue to pay their Microsoft tax until there is a compelling reason why they shouldn't. The cost of continuing to do business with Microsoft is still far cheaper than the cost of changing, retraining, dealing with incompatibilities, being unable to communicate effectively with the rest of the world (who still use Office), coping with .NET when it becomes the de facto standard, dealing with Windows sabotage of competing programs, etc., and you can bet that Microsoft will continue to set their licensing fees to a level where it makes little sense to change.

[ Parent ]
What about us poor pirates? (3.28 / 7) (#11)
by ell7 on Fri May 11, 2001 at 02:34:15 PM EST

Hrm, I suppose i upgrade about every 2 years or so, but right now my costs are zero. I'm not sure software using this model wouldn't be piratable with direct copies, you'd need to use cracked software.

I guess we're all going to have to rely on the intrepid cracker(1) community!

I don't pay for software now, and I'm certainly not going to pay for software that is going to stop working after a couple of years.

Can you say "Open Source"??? (2.28 / 7) (#13)
by Alhazred on Fri May 11, 2001 at 03:21:33 PM EST

I guess Bill Gates can't.

Got some advice for you Billy Boy. Give all those billions away to charity while you still got 'em. :o).
That is not dead which may eternal lie And with strange aeons death itself may die.
Small clarification (4.00 / 3) (#19)
by brion on Sat May 12, 2001 at 02:21:17 AM EST

Well, since my whiny editorial comment has now vanished from the main page, I thought I'd post a brief whiny regular comment too. :)

Of course, since more frequent updates actually save money, organizations will be forced to stay current.

According to my understanding of the 'Software Assurance' plan as described in the article, this assertion is misleading at best (so it will probably be in the product literature from Microsoft). The customer on the new plan pays a yearly fee of approx. 29% of the retail price of the product in return for the right to use it, and to receive and install upgrades whether they actually upgrade or not.

So, a frequent upgrader and an infrequent upgrader pay the same fees as each other under 'Software Assurance'. But, a frequent upgrader will spend more money internally on their IT department to roll out an upgrade, train users, solve mysterious version difference problems, etc, which the infrequent upgrader doesn't pay as often.

Ergo, the infrequent upgrader saves a little money compared to the frequent upgrader on the same plan. But, they pay a lot more than they would by purchasing conventional upgrade licenses.

Now, I could be wrong and 'Software Assurance' may actually require that upgrades be made when they are available (which sounds like bad mojo to be), but that's not my impression. And yes, customers may find they 'get their money's worth' out of the newer versions (lower 'per-upgrade' cost while losing the exact same amount out of their wallet every month), but who's really needed a new feature in Word since 95 came out?

Chu vi parolas Vikipedion?
Where the cost comes from (none / 0) (#23)
by RadiantMatrix on Mon May 14, 2001 at 01:33:26 AM EST

Now, I could be wrong and 'Software Assurance' may actually require that upgrades be made when they are available
It doesn't appear to do so, but that's not the point. The point is, the longer one waits to upgrade, the more it starts to cost, while under current schemes waiting to upgrade saves money. The result is that businesses will start demanding upgrades: "we're paying $X per year for upgrades, you better deliver at least every 3 years." If that happens, upgrades will be released on shorter timetables, with needless feature additions (ergo more bugs).

Even if it isn't customer-driven, the update cycle will get shorter. MS can appeal to the PHB mentality of "I pay the same whether I upgrade or not, so I will upgrade as often as I can." This means that MS will make sure that customers can upgrade as often as possible: changing protocols and file formats as they go. This methodology essentially ties the hands of anyone who wants to use a compatible but alternative product.

never put off until tomorrow what can be done the day after.
Express Yourself

[ Parent ]

Or perhaps... (3.00 / 1) (#24)
by brion on Mon May 14, 2001 at 07:49:29 AM EST

"we're paying $X per year for upgrades, you better deliver at least every 3 years." If that happens, upgrades will be released on shorter timetables, with needless feature additions (ergo more bugs).

Perhaps they'll actually use the upgrades to fix bugs on a regular basis while maintaining compatibility?

No wait, what am I saying? This is Microsoft...

Chu vi parolas Vikipedion?
[ Parent ]
"Upgrades" (4.00 / 1) (#27)
by ucblockhead on Mon May 14, 2001 at 05:19:27 PM EST

Probably a lot of the "upgrades" will be what are now called service packs. Which, are of course free today.
This is k5. We're all tools - duxup
[ Parent ]
Bigger, faster, better (3.00 / 1) (#29)
by brion on Mon May 14, 2001 at 07:48:55 PM EST

Probably a lot of the "upgrades" will be what are now called service packs. Which, are of course free today

... and come out too rarely, add new bugs, etc. If people are going to ´demand´ more upgrades, I´d expect that they´d ´demand´ better ones too. But then, I never did quite understand the ´rational person´ concept in high school economics...

Chu vi parolas Vikipedion?
[ Parent ]
You'll have to upgrade (4.00 / 2) (#26)
by mjs on Mon May 14, 2001 at 01:21:38 PM EST

It doesn't appear to do so, but that's not the point.

In order to stay in the discount program, MS requires you to stay 'current', according to an article on ZDNet. You will indeed have to maintain the upgrade path. Extra costs will include training and especially hardware upgrades, to keep the upgraded bloatware happy. Intel has to be jumping with joy over this.

[ Parent ]

Could be (4.00 / 2) (#30)
by brion on Mon May 14, 2001 at 08:05:20 PM EST

The article does make it clear that to start in ´Software Assurance´ you must first upgrade to the then-current version, but says nothing about whether subsequent upgrades must be installed in the future. However, it´s not unlikely if they´re starting out on a ´you must upgrade now´ footing.

On the other hand, if they´re enforcing upgrades via software/license means, perhaps they´ll give up trying to force upgrades by making the file format incompatible every 4 years. (crosses fingers, hoping against hope)

Chu vi parolas Vikipedion?
[ Parent ]
Hailstorm! [all troops] (2.66 / 3) (#21)
by exa on Sat May 12, 2001 at 06:59:40 PM EST

Why does this name sound like a Nazi assault plan rather than a software system? Or is it just me?

This is a major change BTW. Two years later, the software industry will be absolutely different.

exa a.k.a Eray Ozkural
There is no perfect circle.

Looking at the big picture. (3.00 / 3) (#22)
by mrsam on Sat May 12, 2001 at 08:01:43 PM EST

It is really useful to look at the big picture here:
  • Software subscription service

  • "Phone home"-type registration/product activation

  • Stepped-up aggressive license audits

Microsoft is clearly going after short-term revenue maximization. Actually, I'd say that it's more accurate to call it "immediate revenue maximization". They're turning over every couch, and look under every rug in order to find every last bit of loose change that they can get their hands on.

Why are they doing that? There are two possible answers: they think they can; or MS think they're in trouble, and there's simply no other alternative for them. And the funny thing is that either one is just as plausible as the other.

Remember when in the trial they were caught doctoring a video they used in testimony? Clearly MS has shown their "because we can" attitude before, and more than once.

Then, we have the W2K disappoint. It didn't turn out to be a total disappointment, but certainly we didn't have people waiting until midnight in front of Comp-USA, to buy their copy.

Their stock price is still in the tank. It's up a bit, but not much. Everyone's gunning for them. They have Apache spanking IIS's monkey on the web, Samba continuing to reimplement more and more of W2K-server functionality, Linux is creeping forward on the desktop. I don't think that Microsoft really knows what they need to do. They're just trying everything and anything they can think of, and hope that something works. Bundle more crap into each OS rev, squeeze money out of people in every possible way imaginable, and hope that something works.

One bad thing about being a monopoly is that you have only one target for everyone else to aim at...

Give it some time... (3.00 / 3) (#25)
by dazk on Mon May 14, 2001 at 01:00:42 PM EST

Think about all those private users. They are important. They are going to have to call MS for an activation quite often in the future. This might get on their nerves. That's though only valid if they really pay for MS OSes. I'd say a lot if not most of the normal users don't pay though. They might have a legal copy that came together with their computer but that's it. Now think of how Microsoft got big. It was partly because just about every home user had a microsoft system. They knew the software so training in companies wasn't that expensive. Now think of more and more homeusers switching to alternative OSes since they don't have to pay for them and graphical UIs get better and better every day. More and more very usable apps are being developed (think of the latest koffice snapshots. It'll be at a point where most functions a normal user would expect are there. Staroffice reached that point already and I'm really looking forward to the first release of Open Office). This switch will become easier and easier. There will be more and more people with enough knowledge to help the newbies out.

What I'd like to get to is the more people actually use something like Linux/KDE or FreeBSD/KDE or SomeOS/Gnome etc. less and less trainig costs will be nessesary for companies.

On the other hand you have increasing license costs using MS Software.

In addition Import filters for "legacy" Office documents will get better and better (hopefully) so the problem with migrating to another office suite will become smaller and smaller.

I really hope all this leads to some big companies switching. Once this is performed and became public, there might be more and more companies saying: well, they did it and it worked so we can do it, too.

This is somewhat what happened on the server market, too. There are enough success stories of companies using Linux/FreeBSD/... for their servers that companies are actually considering to switch.

In addition moving to the big iron server solutions when nessessary also becomes more and more popular. I just recently read about a German company that threw out 80 some (if I remember correctly) NT/Novell Servers and replaced all of it with a single large SUN Server.

After all, I think microsoft is heading in the right direction for more competition wich is good. It might just take some more years.


----- Copy kills music! Naaah! Greedyness kills Brain! Counter: Bought 17CDs this year because I found tracks of an album on fileshare and wanted it all.
Time helps Microsoft (none / 0) (#35)
by svampa on Tue May 22, 2001 at 06:52:01 PM EST

In addition Import filters for "legacy" Office documents will get better and better (hopefully) so the problem with migrating to another office suite will become smaller and smaller.

And MS will change the "legacy" Office documents formats once and once again. So subscribers will have to upgrade often, and filters programers will get mad.

This is somewhat what happened on the server market, too. There are enough success stories of companies using Linux/FreeBSD/... for their servers that companies are actually considering to switch.

This is the never ending dicussion.

I think that servers are not desktops, people who works on server are computer qualified staff, people that work on desktops are not. so change is difficult.

Servers stuff, communication protocols etc are standard. DOC, XLS are standards de facto, but they are not controled by a committe, but by MS. MS will change it, not in order to improve them, but watching its business plans.

[ Parent ]
It appears that Microsoft is backing down a bit (4.00 / 3) (#28)
by hillct on Mon May 14, 2001 at 07:06:31 PM EST

It appears that Microsoft has Dropped the Subscription Strategy for a number of markets. It will still be implemented in smaller markets, presumably to evaluate customer response.


--Got Lists? | Top 31 Signs Your Spouse Is A Spy
Justice Department Repercussions (3.00 / 2) (#31)
by copo on Tue May 15, 2001 at 11:58:40 PM EST

I wonder what the Justice Department would have to say about Microsoft moving to this subscription system, which is essentially lease-based.

One of the hallmark cases in antitrust law was the United Shoe case, which dealt with a firm who controlled the vast majority of the shoe machinery market. United Shoe operated on a lease-only policy, giving customers big discounts for renewing leases and giving them free repair, too. That sounds like a pretty good deal for the consumers, right? Well, the Courts didn't think so.

Judge Wyzanski shot their lease-only arrangement down, famously calling it an "exclusionary practice". That is, a practice whose aim is to exclude rivals from the market. I am fairly certain that this is still the precedent in such cases, so one has to wonder exactly what Microsoft's legal team is thinking if this is the way the update part of the software is headed.

Starting to think in terms of capitalism... (3.00 / 3) (#32)
by Mantrid on Wed May 16, 2001 at 11:22:14 AM EST

...MS can only go as far as their customers allow them. They may have a monopoly right now, but so did IBM way back when...then MS reverse engineered their DOS and took over.

Eventually they'll go to far and people will become more determined to look else where. Someone else will eventually supply something better and/or cheaper.

Microsoft is not omnipotent!

Not quite (none / 0) (#33)
by deaddrunk on Fri May 18, 2001 at 10:06:25 AM EST

IBM gave Microsoft the contract to create an operating system for their fledgling desktop PC.

[ Parent ]
History lesson (none / 0) (#34)
by jordanb on Sun May 20, 2001 at 07:59:46 PM EST

Microsoft did not reverse-engineer IBM's 'DOS'. IBM never had a DOS (well, not the way you're thinking of it). IBM was looking for a OS to run on their PC's. They went to Digital Research to get their CP/M operating system.

There is much speculation as to what was so important to Gary Kildall of Digital Research that he needed to miss his appointment with the IBM reps. The most popular rumor is that the weather was so good that he went flying in his private plane. Regardless, IBM was royally pissed about being stood up, so they marched over to this little company in Seattle named Micro-Soft which was (in)famous for their BASIC interpreter for the Altair.

The problem was that Micro-Soft did not have a Operating System, but Bill wasn't about to let that stop him. He told IBM that he would have one when they needed it. Tim Patterson, of Seattle Computing Products, in what he would later call the "biggest mistake of [his] life", had bought a CP/M manual and used it as a guide to write his own operating system for the i86 called "Quick and Dirty Operating System", or QDOS. Micro-Soft bought the non-exclusive rights* to QDOS, and renamed it Micro-Soft Disk Operating System, or MS-DOS.

IBM had been putting up with a Justice Department investigation for monopolistic practices for a while. Some at the company reportedly would carry around two briefcases, one for regular IBM business, the other for the antitrust case. IBM was, therefore, very image conscious. They did not want to look heavy handed and give the Justice Department more ammunition. Consequently, when Bill Gates asked for the right to re-license MS-DOS to other companies, they agreed. After all, they were only making these stupid boxes because Apple was selling them like hot cakes. Becides, Apple didn't need an OS, and wasn't using Intel chips, so who on earth would Micro-Soft sell it to other than IBM?

As it turns out, the only thing which IBM actually used in their "Personal Computer" that couldn't be bought out of a Mouser catalog was their BIOS. The PC took off because it had the letters 'I', 'B' and 'M' stamped on the front of it, but nothing in the box was from IBM other than the aforementioned BIOS. Compaq, about this time, was thinking that a clone of the IBM PC would really be a good bet, so they set about reverse-engineering the BIOS. It worked, Compaq was able to market a "100% IBM Compatible" microcomputer, and began moving them as fast as the fabs could spit them out. Other companies saw this, and everyone jumped into the clone game. Many companies, like Gateway and Dell, were started to build clones, and Microsoft and Intel became very, very rich.

The rest is history.

* Seattle Computer Products retained the right to sell QDOS if they bundled it with hardware, so for a long time, you could buy QDOS from them packaged with useless bits of random hardware.

Jordan Bettis
[ Parent ]
Microsoft's New Software Subscription Service | 35 comments (24 topical, 11 editorial, 0 hidden)
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