Customers Shun Microsoft Upgrade Plan

Many Microsoft (Nasdaq: MSFT) customers are hesitating to sign up for the company's new upgrade program, called "Software Assurance," according to analysts. Despite deal sweeteners like discounts, only about one-third of the software giant's clients have committed to the plan -- and a July 31st deadline is looming ahead.

The overhaul of the Microsoft upgrade process, which was outlined a year ago, is subscription-based and requires an advance commitment to buy upgrades.

Since Microsoft announced the change, there has been widespread grumbling from companies that believe they will have to pay more for the same software they currently are using. With time growing short, their voices are getting louder.

"I don't think it's surprising to see [that] these people [are] reluctant," Michael Silver, vice president and research director at Gartner (NYSE: IT), told the E-Commerce Times. "I think enterprises are feeling pressured by Microsoft to sign up, and many don't want to. They feel like they're getting pushed into it."

Upgrade in Advance

The new upgrade program was implemented to make sure Microsoft's revenue stream would remain stable. Under the terms of the plan, customers are asked to pay an annual fee for application and operating system upgrades. In return for their commitment, they will receive reduced rates on product support agreements.

Companies that do not sign up by the July deadline will not be able to renew contracts with Microsoft at a lower rate, and could encounter trouble when upgrade time arrives. Some companies may find they cannot even buy an upgrade; instead, they will have to shell out cash for a new product.

Bad Timing?

Some observers also question Microsoft's timing. At a time when layoffs and cost-cutting are still the norm, the software behemoth is asking its customers to commit to spending more than they otherwise might have.

A recent Gartner report on the widespread foot-dragging suggested that enterprises often enter into agreements only to find out a year later that a given pact does not fit current circumstances that then obtain, but it cannot be modified.

The report stated that after July 31st, when existing licenses will be eliminated, Microsoft will be "in the driver's seat."

Still, judging by the lack of signatures on Software Assurance contracts, many companies seem willing to take that chance.

Looking at the Sun?

"This may push users away from Microsoft products," Silver said. The result could be a boost for Sun Microsystems' (Nasdaq: JAVA) StarOffice, as well as for other operating systems and software that can take advantage of the newly open field, he noted.

Silver added that even if many Microsoft customers do not capitulate, the Redmond, Washington-based software giant may not care.

"From Microsoft's perspective," he said, "it's possible that they can make more money with this arrangement, even if not all of their customers commit. If it shrinks market share but increases revenue, they probably won't mind."

Drumming Up Support

For its part, Microsoft said the program has been misinterpreted by customers, and it is making an effort to correct those misperceptions.

"It's clear there is still a tremendous amount of confusion out there among our customers," a Microsoft spokesperson said.

"[This] is a significant change in the way Microsoft sells products to its business customers, and we did not do a good enough job in explaining the changes to them."