Park said that under the Open Value plan, "these companies won't be able to look at alternatives. They won't be able to look at competing products." Locking customers in is a key component of Licensing 6, analysts say. Under Microsoft's older licensing programme, companies could buy software upgrades at any time. But Microsoft removed these "version upgrades" under Licensing 6, moving companies to an annuity model where they pay up front under two- or three-year upgrade contracts. Companies signing up for the annuity program would be highly unlikely to consider alternatives during the contract period, since they have already paid in advance for upgrades, analysts said. Still, the "pay before you buy" program met with stiff resistance from a majority of Microsoft customers. "It looks like only... 25 percent to 30 percent (of customers) went for Licensing 6," DiDio said. "You still have two thirds that didn't sign up." Gartner came to slightly different conclusions based on discussions with hundreds of large businesses and computer dealers. The market research firm estimates that one-third of Microsoft customers refused to sign up for Licensing 6, while another third "bought upgrades on part of their licences", Park said. Microsoft's long-term problem is wooing smaller businesses. Those companies have the most financial incentive to seek out alternatives, particularly given recent economic woes. They can also switch technology vendors more easily than large companies, said DiDio. "These folks are feeling pretty disenfranchised," DiDio said. "Fifty percent of the market are small and midsized businesses with under 1,500 users -- many with under 1,000 users. So that's half your installed base." Looking for alternatives
DiDio sees these smaller companies as ripe candidates for StarOffice running on Windows or even Windows replacements such as Linux and Lindows. Because of the licensing terms for these competing products, smaller companies can install the software for a fraction of what it costs to obtain Microsoft upgrades under Software Assurance. "Take a look at their infrastructure," Didio said. "If you have a company with 1,000 PCs or 500 PCs, they're going to be in centralised office locations. It's not so difficult for those folks that do not have a huge infrastructure to rip out and replace Microsoft and switch to something else." Analysts couldn't say how many small or medium-sized businesses might take advantage of Open Value. But they noted that Microsoft has reason to be concerned about further defections. While the software maker slowly gets Open Value going, it is offering another incentive aimed at small businesses. Until 31 January, the company is offering zero-percent financing for one of its Software Assurance programs targeted at small businesses. The slow start-up for is intended to let Microsoft prepare the dealers that will be selling Open Value licences. Allowing dealers to handle Open Value -- as opposed to Microsoft itself -- makes sense for two reasons, said Park: Smaller businesses tend to buy products through dealers, and Microsoft wants to give something back to keep dealers loyal to the company. With Licensing 6, Microsoft took lucrative "Enterprise Agreements" away from dealers, selling them direct instead. "Microsoft wants to give something back to the (sales) channel, by letting them sell Open Value licences," Park said. "They really took a lot of money out of the channel's pocket, because they got a piece of the action on Enterprise Agreements." Park described "a companywide" component of Open Value as a "baby Enterprise Agreement". Under this option, small companies would receive a huge discounts for buying licences in bulk rather than piece by piece. "Microsoft would like nothing better for companies with five to 500 employees to sign up for the companywide option and get Office, Windows, client-access licences -- the whole thing," Park said. "That's an even better way to lock people into not some, but all Microsoft products for three years," he added.
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