Seven Fatal Flaws of Software Assurance: Introduction
It's time to make big changes to a program that confuses customers and does more damage than good to Microsoft's business
By Paul DeGroot
Principal Consultant
Pica Communications
Spring 2011 marked a decade since Microsoft introduced the most controversial licensing program in its history: an upgrade rights and maintenance add-on called Software Assurance (SA). The experience was so traumatic that Microsoft has undertaken no comparable licensing initiatives since then. After five major revisions to volume licensing in the decade before 2001, Microsoft has been stuck at Licensing 6.0 for the entire next one.
That's too bad. The industry has is different, Microsoft is different, and it's long past time for a new look at SA.A Radical Change
Until the advent of SA, upgrades at Microsoft followed the conventions of the time. When a new version of a software product was released, users of previous versions or of competitive products could purchase an upgrade version at a discount at any time, while customers who were new to the software category paid the full price.
SA, announced on May 10, 2001, radically changed the rules: in order to get a discounted upgrade, customers had to pay Microsoft an annual fee, 29% of the full license price each year for desktop software, 25% for server software. Furthermore, they could not wait until the upgrade was released to start paying for it. They had to elect to purchase upgrade rights at the time they purchased the original license.
The program began with a transitional period, during which customers with existing products, such as Windows 2000 and Office 2000, could purchase SA on those products, thus gaining the right to future upgrades without having to pay for full licenses.
The Goals of SA
SA had several goals:
- Many of Microsoft's enterprise customers were signing on to Enterprise Agreements (EAs), in which they paid an annual fee for the right to deploy any version of desktop products like Windows and Office; Microsoft like the idea of the annual fees, so Licensing 6.0 added an EA-like “annuity” program to other volume licensing programs, like the Select and Open programs
- Most other vendors dealing with enterprise customers charge an annual maintenance fee on top of the license price, typically 15% to 20%. Microsoft wanted part of that action
- Microsoft's revenues were famously “spiky,” jumping when a major new product was released, then falling into a trough until the next version was released. Annual SA payments could spread out the revenue, in effect funding product teams during the development of a new version, rather than after its release
- Annual payments make it easier for some customers to fit new software into their budgets. Organizations that use one year's budget as the basis for the next would no longer need to beg for substantial but temporary additions to their budgets for a major software upgrade
- By making customers pay in advance, Microsoft figured it could guarantee steady adoption of new software, since customers would be more likely to deploy something that they had already purchased
The plan was controversial, to say the least. Various analysts and industry associations calculated the effective price of Microsoft software would rise by as much as 200% as a result of the change. Customers also objected to the need to purchase upgrade rights long before they planned to actually deploy the upgrade.
More than a Marketing Error
Although Microsoft characteristically explained the fiasco as a failure to communicate, long after that failure serious problems with SA persist and these are not just communications problems. These flaws are so critical that they warrant ditching the program or changing it drastically.
And customers have gotten the message that Microsoft really communicated: I've spoken to dozens of Microsoft customers over the last decade who very clearly understand the technical and conceptual flaws of SA. These are smart people who ignore marketing smoke screens and cut through to examine critically what a vendor is really doing.
The original program's shortcomings were evident very early on, even to Microsoft's licensing staff. After the transitional period was over, and customers had hedged their purchase of near-term upgrades, such as Windows XP and Office XP, enthusiasm for Software Assurance was low.
Recognizing that problem, Microsoft's solution was to put more lipstick on the pig, throwing in a bunch of additional benefits—subscriptions to TechNet and e-learning tools; software for home use; some tech support incidents; and more. The only constraint, one 'Softie said, was that they couldn't reduce the price of SA itself.
Another effort to put Software Assurance in a more favorable light involved a subtle change to the way it counted SA renewals, a change that has had two major impacts:
- Confused customers more about what SA is and how it works
- Concealed SA's failure from Microsoft executives.
The change was to count EA renewals as SA renewals, even though major SA characteristics, such as annual payments and automatic upgrade rights, had been built into the EA before SA was developed. By counting renewals for the popular EA program as renewals for the unpopular SA program, Microsoft could claim that SA renewals were running at 75% or better. However, since EAs renewals normally run at a 65% to 75% rate, it seems clear that SA's incremental contribution outside of the EA, where customers have the option to renew or not, is very low.
| Basic Facts about SA |
| SA is an add-on to a license purchased through a volume purchasing program |
| In some licensing programs, such as Select and Open, SA is optional. Other programs, like the EA, mandate SA for every license purchase |
| SA lasts for the term of a customer's volume agreement |
| If Microsoft doesn't ship an upgrade in that time, the customer does not get an upgrade or a refund. Microsoft keeps the money paid |
| If Microsoft does release an upgrade during the period that the customers has active SA coverage on a product, the customer can deploy the product at no additional charge. The right to deploy the upgrade is a perpetual right: the customer can deploy any upgrade earned through SA in that agreement even if the SA is not renewed |
| SA must usually be purchased at the same time as a license. Customers must usually buy the product and the upgrade to the product at the same time. You can't get the discount on a product by waiting until the upgrade is actually released and then buying SA. |
Seven Fatal Flaws
After more than a decade it is not clear that Software Assurance still has value. The program's flaws are more than skin deep—Software Assurance penalizes not only Microsoft customers, but Microsoft itself, making the company's products more costly, discouraging upgrades, and reducing flexibility.
Here's my list of SA's seven fatal flaws—flaws so serious that any one of them could justify total re-examination of how the company handles upgrades and maintenance benefits.
