That larger companies were switching to Enterprise agreements or getting better Licensing 6 deals in general didn't surprise IDC analyst Al Gillen. "What you didn't get from the bad press is a sense is who was complaining," he explained. "Very often it was the smaller organisations that were bent out of shape about licensing. That's because the larger organisations got a better deal." Businesses skipping Licensing 6 cited many reasons, according to Yankee Group and Sunbelt Software. Twenty-five percent of technology managers said their businesses simply couldn't afford the new programme. Another 28 percent said the Licensing 6 terms confused them, so they decided to pass on the plan. About 6 percent said they had significant problems with "non-complying software" -- either packages the companies had paid for, but could not offer proof of having purchased, or packages for which there had been out-and-out piracy. Microsoft would not disclose its licensing renewal information, which, as it uses actual sales data, conceivably would be more accurate than analysts' estimates. Because Microsoft doesn't publicly disclose those numbers to Wall Street, the information cannot be revealed elsewhere, said Harley Sitner, a Microsoft senior product manager. "That's a business decision we made, and once we made that decision we have to stay on that track," he explained. Assessing the ultimate fallout of Licensing 6 could take years, say analysts. One reason: The first wave of Licensing 6 customers won't need to renew until the end of October. "It's virtually impossible for a customer to calculate, when he pays his money in advance, what he's going to get in advance," said Paul DeGroot, an analyst with market researcher Directions on Microsoft. "He does not know when the product is going to be released, what he's going to get when it's released, and if it has anything he would like." In two or three years, Microsoft will get the answer to that question, when customers decide to sign up for more Software Assurance or pass on renewing their contracts, DeGroot said. In the short term, Microsoft reaped huge windfalls. Unearned revenue, mostly from licensing, accounted for 22 percent of overall revenue in Microsoft's second fiscal quarter, ended 31 December. Microsoft ended its second quarter with $8.83bn (£5.65bn) in unearned revenue. During its first quarter, unearned revenue swelled to $9.13bn, up from $5.85bn a year earlier. Still, Microsoft also recognises Licensing 6 hurt customer relationships and is hoping to repair them. "A lot of customers are dissatisfied," conceded Rebecca LaBrunerie, Microsoft's product manager for worldwide licensing and pricing. "We did make some mistakes," she said. "We didn't roll out (Licensing 6) properly and we didn't make the announcement and timing carefully, which is why we extended (the deadline) a few times, giving 14 months overall." Gartner's Park said the damage has been significant. "Microsoft hurt the trust many customers placed in it, and that is going to take some time to fix," he explained. Microsoft extends an olive branch
Damage repair in part explains a number of conciliatory changes Microsoft has made to its licensing changes over the last six months. For example, Microsoft last week changed the licensing for eight server software products. Starting 1 April, customers will buy licences for just the number of processors the software uses, rather than for every processor on a server. In December, Microsoft changed client-access licences (CALs) for accessing Windows Server 2003. Under the revision, companies could buy CALs for users as well as for computers accessing the server. "When I look at Windows Server 2003 CALs, I just don't see any downside for customers," Park said. In fact, Microsoft may have learned from its mistakes, he concluded. The company could have eliminated per-seat, or per-machine CALs, in the process. "There are lots of companies that have more users than they have computers," Park said. "Eliminating the older CALs would have made them mad at Microsoft." In November, Microsoft launched a new licensing programme aimed at bringing some benefits of Enterprise Agreements to smaller businesses -- the group of customers most discontented with Licensing 6. Microsoft's Sitner described these and other changes, such as the establishment of a customer licensing board, as a way of "recognising the mistakes that we made" and a sign the company is "listening to our customers and making changes in response to that." "Microsoft is clearly trying to offer olive branches," DiDio said. "Could more be done? Yes. I'm sure customers would like the status quo back. I'd like to pay 1965 prices for gas, too. But that's not going to happen." Businesses will have to live with the peace offerings and be satisfied, she said. "Things aren't going back to what they were." For now, the olive branches are having some impact. In the earlier survey of technology managers, 38 percent said they would wait on Windows XP as they explored other alternatives. But in the newer survey, 3.5 percent said they were in the process of switching to competing operating systems, such as Linux. Mark Romanowski, a senior vice president with New York-based technology services company AMC, said that his customers have started accepting Licensing 6 and warming up to softening policies on other products. "It has been relatively quiet," he said. "The major uproar that happened way back then -- that's over now. We've been taking sort of an unscientific poll every time we meet with customers about any issues with their licensing. No one seems concerned." Still, DiDio and Park both cautioned that there's more than goodwill at work on Microsoft's part. Park noted that the Open Value product greatly benefits Microsoft's push into the small business market. At the same time, changing Windows Server 2003 terms helps in a market where Microsoft faces competition from Linux and Unix. More importantly, Microsoft is responding to the continuing decline in technology spending. "They're getting the fact that the customers simply don't have the cash," DiDio said. "What good is picking the pocket if there's nothing there to pick?" Microsoft's effort to take the sting out of Licensing 6 could be critical to moving the remaining three-quarters of the installed base to the plan, DiDio emphasised. "They are facing the worst and prolonged economic downturn in recent memory. Some customers simply lack the cash."
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