Myths, Facts, And The Office Suite Market

For months, the press has been enthralled by the notion that Microsoft had outsmarted itself by insisting that customers must buy software by subscription by July 31 or suffer dire pricing consequences.  We’ve surveyed customers to ask them what they intended o do. We put the date on our calendar and asked Microsoft what happened.

Microsoft clearly wasn’t going to tell us any numbers – I guess we were foolish if we thought they were.  But they did tell us that about 20% of their customers now purchase through an Annuity (subscription) model.  We’re tempted to apply what we know about the laws of large software corporation’s customers – about 80% of the revenue comes from 20% of the customers and draw the obvious conclusion, but we suspect that would be misleading.

Microsoft had already said in public that the way in which they had gone about trying to convert customers to the new subscription software plan, which provides fixes and upgrades on a continuous basis, against a three-year subscription, was probably flawed.  “We could have done it better,” was the refrain.  Simply correcting the misinformation in the various press and on-line reports would have been a good start, I’d suspect.

But we didn’t realize, until we had a chance to have a detailed discussion with Microsoft’s licensing guru was that EA (Enterprise Agreement) Customers were not affected by this controversy at all, since they are on a subscription basis already and have been for some time.

Affected are customers (many of them large corporations, since both EA and Open agreements require 250 licenses, but carry different terms) that chose the lesser commitments of the Open licensing agreement.  They were the targets of the aggressive Microsoft campaign to get customers to calculate the cost of subscriber-based licenses now versus paying for new licenses (not upgrades) at some date in the future. 

EA Customers are generally not only large accounts, but those who are highly centralized in both their physical locations and in the way they purchase and manage software.  Distributed organizations generally prefer the Open licensing arrangements.  These large accounts typically get about 62% off list pricing and their CIO’s are generally satisfied with the pricing on their Microsoft software, according to Microsoft licensing management.

While Microsoft clearly likes the predictability of the annuity or subscription model, it has no requirement that customers buy all software on a subscription basis.  Microsoft did add a subscription option to its Enterprise Agreements.  Software Assurance, the new subscription model, gives customers perpetual rights to any software released during the term of their agreement.  That is, they may continue to use software acquired under the agreement, even if they choose not to renew the agreement.  Whether this is good (less expensive or equivalent in cost) or bad (more costly) really depends on how often the customer normally upgrades software.  Three and one-half years is estimated as the break-even point.

Of course, Microsoft is not alone in the Office Suite market, although it sometimes seems that way.  Competitors have used the confusion and customer displeasure over the change in licensing arrangements to offer alternatives.

Corel’s WordPerfect

Corel is not offering its WordPerfect Office Suite, but rather is making a special offer around its WordPerfect word processor, using this opportunity as a way to get customers looking at alternatives to try it out.  WordPerfect is banking on its lower maintenance (software upgrades, not support, which is priced separately) costs, its lower overall prices, and its most generous licensing terms, which include the right to use software on multiple systems.

The timing is also good for Corel.  They’ve just hired additional corporate sales representatives (including a manager straight out of Microsoft’s enterprise sales) and they’ve rationalized their licensing programs across all of their offerings, including their graphics products and new acquisitions from SoftQuad and Micrografx.

Sun’s Staroffice

Sun is hoping that its low cost ($25-$75 per copy for corporate users) and cross-platform strategy will be appealing to users looking for an alternative.  StarOffice includes a Linux card as well as a recently announced intention to support a Mac OS X port sponsored by Sun. (There is an alpha Mac OS X port from the OpenOffice.org group, but this would get a full version to market sooner.)

So. . .

We’d suggest the vote is still out.  While some publications have reported as many as 40% of Microsoft office users weren’t going to buy into the Software Assurance (subscription) program, we now know that means we were only talking about people NOT in the Enterprise Agreement program.  This makes counting well neigh impossible.

The real answer will be how many copies of StarOffice, OpenOffice.org or WordPerfect will be sold that wouldn’t otherwise go into the market?  We won’t be able to see that until toward the end of the year.  Stay tuned – or send us an email if your organization is making a decision you’d like to let us know about.

We’d especially like to hear from you if you belong to the federal agency that is rumored to be buying 170,000 copies of Open.Office.org.  We’d love to run that rumor down.  

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