Windows licenses can cost extra for small businesses

A change to Microsoft's licensing agreements may save bigger customers some money, but businesses with fewer than 500 PCs could still be asked to pay twice for copies of Windows 95, 98 and 2000.

As previously reported by CNET News.com, confusing and ornate terms in Microsoft's licensing agreements forced many corporate customers to buy two copies of Windows 2000 for the same computer or to invest in additional but unnecessary upgrade packages.

Gartner analysts Neil MacDonald and Alexa Bona say Microsoft hasn't really reversed its policy on the cloning of Windows workstations. see commentary

Microsoft has partly backed off its previous position, freeing the majority of corporate customers from that bind. But the company's new position, as posted on its licensing Web site, does not include small businesses or other companies with fewer than 500 licenses.

Controversy over the licensing policy started last month when market researcher Gartner issued a scathing report criticizing aspects of Microsoft's licensing agreements.

The Redmond, Wash.-based software maker had been demanding corporate customers pay a second time for Windows when they erased the copy of the operating system preloaded on a PC and replaced it with another, identical version. Corporations engage in this common practice, typically known as reimaging, to install Windows in tandem with a host of other applications of their choosing.

The charges had applied to companies subscribing to Microsoft's Open, Select and Enterprise volume licensing plans, although it had little real effect on Enterprise subscribers. Under the revision, subscribers to the Select plan will no longer be asked to pay twice for Windows.

That leaves Open subscribers holding a bill for reinstalling something that they already own, in large part because these smaller customers do not have the same clout, according to a Gartner analyst.

"For the big businesses, Microsoft has backed down," said Gartner's Neil MacDonald. "For the little guys, those using the Open program, Microsoft has not backed down."

MacDonald added: "There are a lot more little guys in the world than big guys, and Microsoft knows that. The trouble is the little guys can't effect change."

Simon Hughes, Microsoft's program manager for licensing, acknowledged that a backlash by its larger customers compelled the company to revise its licensing policy.

In its critique, Gartner said the policy forced companies to buy unnecessary upgrades for between $96 and $171 per workstation.

MacDonald said that, with the new adjustment to the policy, Microsoft had made a good start but had left the bulk of businesses in the lurch.

"What they've done is lower the bar a little bit to include Select," he said. "But it's the small guys, the ones without enough clout or purchasing power to effect a change, that Microsoft is going to take money from."

Hughes acknowledged that Open license subscribers could still be liable to buy an upgrade when reimaging PCs.

The change "clearly doesn't cover Open customers today," he said, adding that Microsoft will evaluate changing the Open license policy "when there is demand from those customers to do so."

Companies with fewer than 500 desktops must subscribe to the Open license program, and Gartner noted that it is not unusual for companies with as many as 5,000 PCs to opt for Open agreements.

Computer companies have found ways to get around Microsoft's strictures. Compaq Computer, for example, created a contract rider for business customers that says Compaq is not installing its own copies of Windows 2000 onto computers shipped to customers. Instead, it is a copy from the customer's Select agreement, according to Ed Reynolds, Compaq's director of PC life-cycle solutions.

Hewlett-Packard and IBM also have helped customers get around the stiff licensing policy. While the PC makers have an incentive to do so for their largest customers, smaller operations affected by the imaging policy could be on their own.

"Microsoft is trying to spin this in a positive light, trying to overlook the fact no one else charges for reimaging," MacDonald said. "We continue to hold the position that paying for the right to reimage is wrong."

News.com's Michael Kanellos contributed to this report.