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Microsoft (Nasdaq: MSFT) has unveiled a new policy to discourage its business customers from switching to Linux or other open source alternatives . Called Open Value , the new offer is part of the software giant's Licensing 6 volume licensing program.
"What's happening is that Microsoft sales reps have been instructed to be on the lookout for any businesses that are migrating some of their machines to the Lindows OS ," Yankee Group analyst Laura DiDio told NewsFactor. "If [the sales reps] think there's a real threat of some pretty large numbers of defections to open source, they can request authorization from Microsoft higher-ups to offer steeply discounted pricing."
DiDio said that in some cases, the discounts could be as high as 50 percent.
Price Hikes
Microsoft instituted its Licensing 6 program this summer. The plan raised licensing fees for the company's business users from 33 to 107 percent, according to research firm Gartner.
Although many of Microsoft's large enterprise customers complained about the increases, small businesses were particularly hard hit. Of those that declined to participate, the majority were small businesses.
Now, with its new Open Value initiative, Microsoft is attempting to make participation in Licensing 6 easier for these small businesses. The plan allows small businesses to spread out payments over three years while still staying current with the latest Microsoft releases.
The program will begin early next year, according to Microsoft.
Additionally, Microsoft is offering zero percent financing until early 2003 for one of its Licensing 6 programs geared toward small business customers.
Small Business, Hospitals and Schools
Although Lindows and other open source alternatives are less expensive than Microsoft products , making the switch is difficult for large businesses that have tens of thousands of users.
"The folks who are most at risk to defect to Lindows are small and home office businesses, and also the small and mid-sized businesses with 1,000 to 1,500 users or less," DiDio said. "For them, it's easier to rip out and replace. They've got a centralized infrastructure, and they're saying, 'I can really cut my costs. I'm looking at huge licensing fees from Microsoft that could go up at any time.'"
DiDio said there is also a risk of defection by academic users. "With the new Microsoft Licensing 6 scheme, they lost those hefty discounts they had before," she noted. "So we've heard a lot of school districts say, 'We don't have the money, we're thinking about going to Lindows.'"
DiDio claims there is a similar feeling among hospitals that use Microsoft products.
Microsoft representatives were not immediately available for comment.
Licensing Strategy
Under Microsoft's earlier licensing program, businesses could purchase upgrades, or decide not to, as suited their needs and budget. But the Licensing 6 program, which requires companies to pay up-front fees to ensure access to upgrades, has the effect of committing customers to Microsoft's products and upgrade schedules for a multiyear period.
Once a company has paid up-front, it would be difficult for it to consider purchasing an alternative software solution.
It is this need to commit, in addition to the price increase, that has most likely caused the greatest dissatisfaction among the software giant's business customers.
In the face of this dissatisfaction, said DiDio, even some long-term Microsoft users are considering alternatives. "So when they do see an alternative that's appealing, they say, 'What's a little learning curve?'"
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