Consulting » Dealing with Microsoft’s fees

If you haven’t done so already pick up the phone, call Microsoft and try and negotiate a new deal on your software licence fees. Public sector organisations in the UK have already saved themselves millions by threatening to abandon Microsoft products and a handful of private sector companies are doing the same.

The catalyst for this action was Microsoft’s decision in May last year to reform its software licensing. Customers will now be guaranteed access to the latest versions of its business software, including Windows and Office, at discounted upgrade prices – but only if they use the “current” XP version of the Windows operating system.

For many users, especially companies still running Windows 95 or 98, the cost of upgrading to XP could be phenomenal. The blue-chip user group The Infrastructure Forum (, whose membership includes 41% of FTSE-100 and equivalent-size companies, estimates the change could double members’ software bills.

Outrage from the business community has so far delayed the roll out of Microsoft’s reforms. Originally the changes were timetabled for 1 October 2001, but they will now take effect on 31 July this year.

The problem for companies using Microsoft software is that the software giant has them over a barrel. Windows and Office skills are so firmly entrenched in UK business that the competition, such as Sun Microsystems and IBM, has tiny penetration into the desktop space. Barring antitrust suits, Microsoft can do pretty much what it wants with pricing structures and software development.

But there is power in a union, as teams jointly representing local and central government showed in March 2002. The Office of Government Commerce (OGC) complained to Microsoft that its licensing reforms would cost the taxpayer an £60m a year – and said government may be forced to change its software supplier. Faced with losing 1.7 million desktops, and the 10% of Microsoft’s UK revenue that government contracts represent, Microsoft agreed the biggest deal of its history, saving the OGC £100m in software fees over three years.

As yet, there has been no consolidated private sector effort to put pressure on Microsoft but some large companies are cutting individual deals. The Royal Bank of Scotland negotiated a contract covering all upgrades during the next two to three years, and the Halifax secured a deal for 37,000 users as a part of parent company HBoS’s drive to cut costs by £150m.

If other businesses are not so successful in negotiations then the alternative might be to call Microsoft’s bluff and do away with its software altogether.

But, as Dan Kusnetzky, vice-president of analysts IDC told Computing magazine, there is a lack of choice in the marketplace and Microsoft knows it: “Microsoft can get by with a certain level of disregard before people walk away. It’s too costly just to rip things out and replace them and there’s still a question if the functionality is available with anything else,” he says.

Even so, if you want to save a lot of money you might want to consider open-source software (OSS) such as Linux. Proprietary brands of Linux operating systems, including Red Hat and Sun Microsystems’s StarOffice, are catching on, but users have to invest in developing and maintaining systems and re-training staff.

There are signs Microsoft is worried about Linux. During its antitrust hearing on 18 March 2002, the states’ attorney produced a memo from a senior Microsoft manager stating that Dell’s decision to sell Linux operating systems was “untenable”. The PC manufacturer subsequently shut its Linux arm without explanation. It was also alleged Microsoft had put pressure on Compaq and Intel to ditch Linux.

But even though software vendors such as SAP, Siebel and Oracle offer Linux versions of their products, the inability to run Microsoft desktop favourites such as Word and Excel without emulation software and licensing problems means it’s unlikely Linux will ever command a large slice of the desktop market. Linux is more likely to be a viable alternative to Microsoft in the back office, and many companies, knowingly or not, currently have point servers running on Linux.

Inevitably, Microsoft is open to negotiation. Peter Devery, its PR communications manager, says: “We have to talk to people and explain the situation. I would suggest that if an FD already has a relationship with a Microsoft manager that is the best place to start. We are more than happy to talk about all aspects of licensing.”