The economics of desktop software are changing fast. Microsoft, the almost-universal presence on the desktop, has radically overhauled its licensing model, with the result that many of its users are seeing their costs go up by half. The response in some quarters: to look for lower-cost alternatives.

Microsoft’s new corporate upgrade scheme, Software Assurance (SA), provides users of Windows 2000 and XP with desktop and server software updates as soon as they are released, and is

now the only method of upgrading Microsoft software for volume users. Those companies that did not sign up for SA before 31 July 2002 will have to buy completely new licences for the next versions of Windows or Microsoft Office.

There is a sting in the tail with SA. Customers will pay an additional 29% on average to cover desktop software, and about 25% more to cover server upgrades, according to Gartner analyst Alvin Park.

A recent survey at Information Age‘s web site, Infoconomy.com, supports these figures. Of the companies polled that had signed up to SA, 48% thought their costs would increase. Only 16% said costs would go down.

The consensus among analysts is that SA will reduce software licensing and upgrade costs only for those enterprises that upgrade their Microsoft software at least once every three years. Typically, these are companies that rely on up-to-date software for competitive advantage, such as technology companies or the development teams of large corporations.

Microsoft has one more trick up its sleeve that may convince corporate customers it is worth paying for the privilege of sticking with its software. According to Microsoft, its web services based .Net framework will reduce the burden of client support while improving the user experience. The bulk of .Net software will sit on the server, with a small part on the desktop to provide access to server applications. IT staff will be able to configure and maintain this software on each client from the server.

But many of .Net’s vaunted desktop capabilities have yet to come to market, and enterprise-class applications will have to be re-written to make best use of .Net. On top of that, many analysts remain sceptical about what .Net will ultimately provide. All that Microsoft can point to at the moment is that .Net’s potential will be delivered most effectively through SA.

In effect, Microsoft has presented an ultimatum to its corporate customers: pay to keep up with the cutting edge when it arrives or get left behind. But it seems most customers have called the company’s bluff. According to AMR Research, over 60% of businesses have decided not to sign-up to SA or are assessing their options. Infoconomy’s own research suggests that one third of companies have chosen not to upgrade and a quarter are still conducting a review of whether to switch to SA. Half have instigated reviews of desktop cost of ownership.

These companies have three choices: join SA after paying for full versions of all the latest software; continue using the existing software and buy new licences only when an upgrade is necessary; or replace Microsoft software with cheaper alternatives.

Alternative options

The dissenting mood among many Microsoft customers has spurred several other desktop application vendors into action. Sun Microsystems has recently released its first commercial office applications suite, StarOffice 6.0; Corel is offering rebates on W

ordPerfect Office purchases; and Ximian, a distributor of enterprise-class open-source desktop software, has been attracting several large customers that have grown tired of their reliance on Microsoft. The up-front cost savings are clear. StarOffice 6.0 sells for around £50 per user in the UK, while Ximian’s desktop software costs even less at $50, even though it includes StarOffice. This compares favourably to MS Office’s price tag of £400 to £600.

But Gartner Research analyst Michael Silver warns that even partial replacement of Microsoft may not provide the expected savings. A theoretical model composed by Silver suggests that, in a company with 2,000 MS Office licences, it would cost between $1.9 million and $4.5 million to migrate 70% of users to StarOffice 6.0. Those costs largely stem from training, incompatibility issues and migration.

“Software acquisition costs may only be the ‘tip of the iceberg’ compared with migration and learning costs,” says Silver, “Ongoing costs of managing a diverse automation environment should also be considered.”

Of those polled in Infoconomy’s research, 84% include licence costs when considering the cost of desktop support, but the majority also look at support staff and security costs. Meta Group analyst Ashim Pal says that 50% of an IT department’s budget is spent on supporting and maintaining desktops. “The industry average per machine is $3,500 for highly controlled desktops, $5,000 for lightly managed desktops and $7,000 to $8,000 for laptops.” Companies thinking of migrating, therefore, need to consider how much support they will need to provide afterwards.

“Microsoft Office is part of the basic IT infrastructure of the enterprise,” argues Silver, “and cannot be eliminated or easily replaced.” It is naive to think that the alternatives will replace Microsoft software entirely, he says. And vendors such as Sun, Ximian and Corel agree. “You should not completely replace your desktop software with Linux, but start by piloting small projects and targeting departments,” cautions John Perr, Ximian’s vice president of marketing. Employees who only need email and word processing functions can run the cheaper StarOffice, while employees who rely on Excel, PowerPoint or Access applications can use the more expensive Microsoft suite.

It is clear that licensing and support costs for desktop software are set to rise. But businesses are not faced with an ‘either/or’ choice. More than 50% of companies will have a mix of architectures and software vendors’ products in the next few years, according to Silver. The key to success will be managing those different packages and architectures to best effect.