MS squeezes business for more dough with rental model

Enterprises to own the software even less than they do already

Microsoft's luckless corporate customers are about to find themselves bounced into a rental model, the bottom line being that they'll have to pay Redmond more, more regularly, and they're not going to have much of a choice. UBS Warburg analyst Don Young was yesterday trailing a "fundamental shift" in the company's licensing policy which would effectively mean customers just keep paying for their Microsoft licences - which of course, is a rental model.

Funnily enough Microsoft backed away from selling Office XP on a rental basis just last week, confining itself to experimenting on the Brazilians, Australians and New Zealanders. These were among the luckless victims of the "successful" trial of product activation systems in Office 2000.

The corporate market, however, is a much simpler and more lucrative target for Microsoft, as it's receptive to licensing deals which offer incentives for volumes and multi-year commitments, and which spread the spend out. According to Young, this is where Microsoft will be making its move.

At the moment "perpetual use" contracts for enterprises exist. These keep you current with versions of the software and spread the payment for the software licence, but once the term of the contract is up the software is still yours, and you can carry on using it for as long as you like without having to give Microsoft any more money. Naturally it's only still yours in the sense that any software is ever yours, which it isn't. But you can see why Microsoft doesn't like this one much all the same.

Instead of this, it intends to go over to a model where at the end of the contract you can't carry on using the software. In the case of apps this is likely to result in the software being busted down to viewer' status until you pay more money, just as is currently the case with the OXP corporate preview edition when it times out. Whether customers like this or not is immaterial; Microsoft might keep perpetual use contracts on the books, but it'll be simple to carrot-and-stick incentive customers, particularly corporate customers, into switching.

Young says Microsoft has already succeeded in weaning several major enterprise in Europe away from perpetual, and has been offering to buy companies out of such deals. Presumably these offers will have a certain amount in common with previous wheezes for the corporate market; typically these offer savings up-front, easy payment terms in exchange for contractual commitment, and then when you add it up over a period of five years... But of course when you also factor in the cost of switching you sign on the dotted again.

The licence model Microsoft is now moving to replace was itself devised along these lines in order to get corporates to pay more than was previously the case. It worked famously, but obviously not quite hard enough, so here we go again.

Another thing to note about all of this. It is a rental model that can be and is being implemented without .NET being in place. It is simply a switch to rental-style product packaging. This was also what was intended for the rental version of OXP; it would effectively just have been the boxed retail product, paid for in easy stages and with only viewer functionality if you stopped paying. But only the lab rats are getting that now - for the moment. ®