Microsoft's turning tide may strand customers

"There are so many new and outstanding features in this developer set (Whidbey)," said Evjen. "We'd love [our] clients to start utilising these features but now they're going to have to wait."

Customers with annuity licensing contracts will also feel the effects of the latest product delays. Microsoft has spent the past few years convincing large companies to switch from one-time software purchases to Software Assurance licence agreements that compel them to spend 25 percent of the overall cost of a software product per year for three years, in exchange for getting all updates to the product.

The assumption was that such deals would cover at least one major upgrade. In many cases, though, that may end up not being the case, said Gartner analyst Alvin Park. The situation could be particularly frustrating given that some customers initially saw the Software Assurance effort as a way for Microsoft to raise prices and strong-arm them into upgrading before they really needed to do it.

Although Microsoft has offered Software Assurance customers other perks beyond the upgrade rights, Park said most customers "don't see the value in the components that Microsoft has added. They have a right to feel they are not getting value for expenditure."

Bad timing
That issue could hurt Microsoft's efforts to convert more of its customers to ongoing maintenance deals from one-time license purchases.

"This (delay of Yukon) comes at a really inopportune time for Software Assurance renewals," said Directions on Microsoft analyst Paul DeGroot. He noted that, as Microsoft's older Upgrade Assurance program was coming to an end in 2002, many customers rushed to sign up. Those upgrade rights will expire in 2004 and Microsoft has already said it expects a relatively low rate of renewal -- creating a $1.1bn (£0.61bn) "hole" that the company must fill through other sales initiatives.

Now the delay in Yukon and Whidbey could put a further curb on Microsoft's licensing effort. "This announcement does not improve that outlook," DeGroot said. "It's obviously likely to reduce" renewal rates.