Microsoft to add 'value' to software licensing package
By Dan Goodin
Bloomberg News Service
REDMOND, Wash. — Microsoft Corp., the world's biggest software maker, will start giving companies free support and training as it overhauls a licensing plan introduced last year that has met with slow sales.
The company will give customers of its two-year and three-year Software Assurance upgrade plan free training and support, said Rebecca LaBrunerie, a licensing product manager. It comes after the switch to the plan, which gives customers free upgrades over several years, angered licensees by raising prices in some cases and mandated too early a deadline for some to act.
Microsoft chief financial officer John Connors has said the company needs to provide more "value" to customers who choose multiyear licenses under the program, an option Microsoft is counting on to boost revenue and make it more predictable. Multiyear plans last quarter meant Microsoft had 26 percent of sales nailed down before the period began.
"It's not clear that people have accepted that software assurance is something they should purchase every time they buy a software license," said Paul DeGroot, an analyst at researcher Directions on Microsoft. "To keep this thing going Microsoft does have to make it more attractive."
Low expectations
Convincing customers to buy the upgrade plan "will be one of the key things that the company has got to be successful at over the next 24-month period as we try to move more and more of our business to a multiyear licensing program," Connors told investors and analysts at a January meeting.
In the December quarter, Redmond, Wash.-based Microsoft's forecasts for upgrade-plan sign-ups were "low" and "those low expectations were not exceeded," Connors said. Last quarter was the same, Connors said.
Microsoft switched in August to the new licensing plan, which raised some customers' upgrade costs by requiring them to purchase long-term service contracts in order to get discounts on new software versions. Some licensees said they would seek competing products.
Chief executive Steve Ballmer said in an interview in October that the company shouldn't have undertaken the switch during a declining economy and needed to do a better job communicating such changes to customers.
The multiyear contracts have helped Microsoft increase sales even as revenue declined at software makers such as Siebel Systems Inc. Profit in the quarter ended in September more than doubled on the strength of a licensing plan, which gave customers until July 31 to buy the multiyear contract or else have to pay full price for a product the next time they upgraded.
Unearned revenue
Microsoft recognizes those sales over several years, helping build up $8.53 billion in unearned revenue as of the end of last quarter. That consists of sales the company has billed but not recognized as revenue on its income statement.
The figure is down $304 million from the quarter ended Dec. 31 as the company works through the unearned revenue faster than it can sign new multiyear agreements.
To keep boosting unearned revenue, which represents future sales, the company needs to improve "the total value proposition" it offers customers with the upgrade plan, Connors said when the company reported earnings for last quarter.
Microsoft shares closed 6 cents higher to $24.22 Friday on the Nasdaq Stock Market. The stock has declined 6.3 percent this year.
