Microsoft cuts prices for small business

In October, Microsoft plans to start selling its Windows Server 2003 and its Exchange Server 2003 together for $599 (£380), the software maker said on Wednesday. That price includes a licence for up to five PCs, with discounted pricing on additional licences available to companies that have up to 75 computers. The two-part bundle will be part of an update to Microsoft's Windows Small Business Server line.

The existing product in that line is a larger collection of server software for $1,499. That bundle is slated to be updated in October, when it will go on sale as the "premium" edition. It will include Microsoft's SQL Server database and another program that allows companies to set up a complex firewall to protect corporate data, according to the company.

However, with both editions, Microsoft is raising the licence fee for each computer or person with access to the software, after the first five. The so-called client access licence is rising from $60 to $99, with one licence required either for each person who uses the software or for each computer, whichever is the lesser count. A business that buys 40 client licences, for example, will pay about $1,600 more in licence fees for the new editions than they would with Microsoft's existing Small Business Server product, excluding any volume discount the company might get.

The new packages are part of Microsoft's large-scale effort to expand its sales to small businesses. The company is investing $2bn on this effort -- it has made several acquisitions that brought in software for small companies and has placed its former sales head, Orlando Ayala, in charge of the push.

While two-thirds of small businesses have more than one PC, only about one-fifth of such companies has a server, according to Katy Hunter, a group product manager for Microsoft.

"It's really… the brave few that have taken the leap to that kind of computing," she said.

Microsoft said it expects the lower-priced bundles to pave the way for computer makers such as Hewlett-Packard and Dell to sell a software-server package for less than $1,000. Both editions of the software are slated for release at a Microsoft partner conference that starts 9 October in New Orleans.

As for the increase in licence fees, Hunter said it was necessary for Microsoft to be able to offer the $599 package. Microsoft also hiked the fee for the premium edition, but Hunter said the company added broader rights for some products.

Paul De Groot, an analyst with market research firm Directions on Microsoft, said the $599 option reflects Microsoft's tendency to offer lower server prices while, in some cases, raising the price it charges for client access licences, or CALs.

"I see Microsoft placing somewhat more emphasis on the CAL as a revenue generator," he said. "Microsoft is trying to get more money from CALs and keep server prices fairly low."

Although it has increased, the $99 licence fee represents a steep discount in comparison to the licence fees for the individual products that are included in the premium edition. However, $99 is about what one would pay separately for the Windows Server and Exchange licences that are included in the standard edition, De Groot said.

Hunter said both editions of Small Business Server represent the lowest-cost options for Microsoft's various products.

Tipping the balance
IDC analyst Ray Boggs said Microsoft has priced the new software package aggressively, making it attractive to small businesses that have been thinking about getting a server but have yet to make the investment.

"They've done a lot more window-shopping than actual purchasing," Boggs said. "This is the kind of thing that can get them reaching for their wallets."

While some mid-sized businesses may find Linux more appealing, Boggs said the simplicity of Microsoft's software is more attractive to the smallest organisations -- many of which don't have a full-time employee to handle their computer systems.

Boggs said smaller companies are getting increased attention from Microsoft and from computer makers who see large companies freezing or cutting their technology spending.

"It's clear they view the small- and medium-business space as a part of the grown-ups' table and not the kids' table," Boggs said.

Hunter said the new software, Microsoft's fourth package for small businesses, can be installed in a third of the time that's needed to mount a competing set of Linux software. Also, compared with earlier versions, more components in the software can be preset by computer makers, reducing installation time for customers.

"What was a three-and-a-half-hour process is now a 15-minute process," Hunter said.

The software maker has also tailored some of the Small Business Server's default settings to increase security, Hunter said. For example, it turns a firewall on by default, with all ports turned off until a customer wants them opened.

Hunter said Microsoft tried to make the 2003 product line easier to manage both for on-site employees and for companies such as computer resellers that might be contracted to handle information technology issues remotely.

In addition, the line includes Microsoft's SharePoint Services software, which promises to help companies set up their own intranet and offers a "remote Web workplace," where employees can remotely access business information.