Is It Time to Drop Subscription Offerings in the Enterprise?

Microsoft last week dropped the first official hints about Windows 7, the major Windows version it plans to deliver in 2010. I know, I know, Windows Vista just came out, and most readers haven't even begun considering deploying that system, let alone its successor. But an interesting little tidbit in the short list of things we do know about Windows 7 has me curious.

First, let's dispense with the niceties: Windows 7 will ship in both 32-bit and 64-bit variants, contrary to earlier-stated plans. It will be a major update, not a minor Vista refresh. It will ship in versions for both consumers and businesses. In other words, we don't know very much beyond the mile-high view Microsoft has provided so far.

But wait, what's this? Microsoft says that it's considering a new subscription offering for Windows in the Windows 7 time frame, but won't provide any details. Currently, the company doesn't offer any subscription offerings to customers outside of Software Assurance (SA), but Microsoft did experiment with various Microsoft Office subscription schemes internationally a few years back. Does the company intend to push its SA licensing model to all customers, be they consumers or business users?

That's a real concern, even though it sounds far-fetched. Just last week, perhaps privy to the information Microsoft was about to partially reveal, analysts at Gartner predicted that Microsoft would switch all its business software licenses to SA. In other words, SA would become mandatory.

So what's the real benefit of SA? Obviously, you get to budget your software spending over a multi-year period, which can be beneficial. But Microsoft says that the primary benefit of SA is that it gives customers access to new product versions and updates as they come out. Think about that for a second and try not to laugh. After all, these are the very methodical spendthrifts that have caused Microsoft to stretch out its product development and support lifecycle because they don't upgrade very often.

I'm not alone in doubting the value of SA. Forrester Research published a report earlier this month noting that 26 percent of Microsoft's SA customers won't renew their contracts this year, and 18 percent will renew only some contracts. A full 31 percent are uncertain. Only 11 percent said they'd definitely renew, and 80 percent of companies who responded to Forrester's survey had some complaints about SA. That doesn't sound like a big group of satisfied customers.

Of course, SA has been a huge success story--for Microsoft, that is. In its most recent financial quarter, which concluded at the end of June, the company reported that its Windows client division recorded $3.8 billion in revenues, up 14 percent from the same quarter a year earlier. Most press accounts noted that this was due to brisk sales of Vista. But that's not entirely accurate: In fact, much of this revenue was due to SA customers re-subscribing after their 2004 licenses expired. (One analyst suggested that the gains also had more to do with subtle price gains due to 72 percent of Vista sales being of the premium, more expensive, product versions.)

SA is a proven money maker for Microsoft, although it's unclear whether the benefits outweigh the costs to enterprises. Please tell me if I'm wrong. But remember that someone has to pay for huge Microsoft expenditures like the $1.1 billion Xbox 360 warranty fix. Who better than Microsoft's best customers?

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