18 October 2002 Software giant Microsoft has reported booming revenue growth of 26% for its latest quarter, largely driven by the company’s controversial new software licensing scheme, according to analysts.

Microsoft’s stellar performance contrasts sharply with that of Siebel Systems, the leading supplier of customer relationship management software, which reported a steep drop in sales on the same day.

For the company’s first quarter to the end of September, Microsoft registered revenues of $7.8 billion (€8bn), compared with $6.1 billion (€6.3bn) in the same quarter a year earlier.

This revenue growth was driven by strong sales of Microsoft’s Windows XP operating system, which helped its client software division to increase revenues by a third to $2.9 billion (€3bn). Microsoft said it had sold more than 67 million copies of Windows XP since its launch in October 2001.

However, analysts have largely attributed this revenue increase to Microsoft’s much-maligned new software licensing scheme called Software Assurance, as opposed to a sudden sharp increase in IT spending by Microsoft customers.

Software Assurance is intended to push customers into paying a regular subscription to use Microsoft software, but it has been criticised as an instrument for making customers pay more.

For example, analysts suggest that the average corporate customer will pay an additional 29% for their desktop operating system licences and an extra 25% for their server licences. In return, they recent software updates and upgrades as soon as they become available for no extra costs.

In effect, Microsoft is shifting towards a ‘perpetual licence’ charging model. The company also set a deadline of 31 July for Software Assurance, which created a rush of customers to sign up before this date. While a number have weighed up alternatives such as Linux, a threatened exodus from Microsoft platforms never materialised.

In contrast, Siebel Systems’ revenues slumped by 18% to $357.2 million (€367.3m) for its third quarter of 2002. New software licence sales at Siebel plummeted to $126.8 million (€130.4m), compared to $193.5 million (€199m) in the third quarter of 2001.

However, this poor performance was not the only issue that Siebel CEO Tom Siebel had to address on an earnings conference call.

He strongly rebuffed recent analyst suggestions that Microsoft is about to take a minority stake in – or even acquire – Siebel. Although he confirmed that Siebel will make an announcement next week about its relationship with Microsoft, Tom Siebel said, “it is not [about] Microsoft buying Siebel or Microsoft making an equity investment in Siebel.”