Microsoft to amend .Net Server licensing

Microsoft later on Monday plans to issue the second Windows .Net Server 2003 release candidate and to announce changes to its software licensing policy for businesses.

The licensing modifications could radically change how businesses obtain client-access licenses (CALs) for future Microsoft products. The company until now has required businesses to buy a separate license for each computer or device connecting to one of its server products.

Starting with Windows .Net Server 2003, which is slated for release in April, businesses also will have the option of purchasing CALs per user, rather than just per machine.

Other licensing tweaks to be announced Monday include changes to licensing for terminal services--that is, methods for accessing Windows desktop and server applications through terminal emulation--and access to a Web server over the Internet, a Microsoft representative said.

The CAL change comes as Microsoft continues its attempts to repair relations with customers who resisted its new Licensing 6 program. Under that program, which went into effect in August, customers must sign up for two- or three-year "Software Assurance" maintenance contracts to receive upgrades. Research firm Gartner estimates that the new program raised the majority of businesses' licensing fees anywhere from 33 percent to 107 percent.

Yankee Group analyst Laura DiDio estimated that as many as two-thirds of Microsoft customers refused to sign up for Licensing 6, even though they risked paying full price for upgrades later on.

One analyst welcomed the CAL changes.

"This is something customers have been hollering for, for a long time," said Gartner analyst Alvin Park. "It is a positive thing they are offering per-user licenses. This is especially good for people that roam," or use multiple machines, such as a PC in their office and a laptop while traveling, said Park.

Under the current model, a person who connects to a Windows 2000 Server using a desktop PC, a notebook and a handheld could be required to get a CAL for each machine.

"This new model would particularly benefit people that use three, four or five devices," Park said.

But in businesses where several people might share a single computer, the per-machine option would make more sense.

"The per-device license that they've always had will still favor those (businesses) that have more people than they have devices," Park said. "If you're an organization that has more devices than you have people, you would want the per-user license."

Microsoft apparently plans to apply the new licensing scheme to future products and not grandfather existing applications, Park added. "Others will be added as they roll out new products."

Pay dirt for Microsoft
Still, the company won't be giving away much in the CAL change, particularly since initially only Windows .Net Server 2003 and Terminal Services would be affected--and not until April.

More than almost any other company, Microsoft has made an art form of wringing money out of every device connecting to its server software, say analysts.

A company might pay for Windows XP, but then pay again for the right to access Windows 2000 Server and on top of that for the Office suite's Outlook e-mail and calendar program to access Exchange Server--after already paying separately for the server products. The same would apply to connecting to other products, such as the SharePoint Portal Server.

"The key to Microsoft's software strategy has always been to create positive feedback loops," said Jupiter Research analyst Michael Gartenberg. "Microsoft has a broad product line, which spans the range from data-center-oriented server software at the high end to children's software at the low end, and each of these offerings is centered upon or related to the Microsoft Windows desktop operating system."

Microsoft's strategy of integrating products technologically benefits the company from a licensing perspective, too, particularly as the number of server products increases.

"Unless enterprises and consumers begin to adopt other offerings and desist from always choosing a Microsoft solution, this strategy will continue to serve them well," Gartenberg said.

Still, Microsoft can charge companies for any device connecting to one of its server products. Park also warned not infer any broad loosening of how Microsoft views the licenses.

"Client-access licenses are a significant form of revenue for their server products," he said. "Microsoft wouldn't do anything that would risk this revenue (stream)." While praising the CAL changes, he also downplayed their significance for many customers. "I don't know that I agree with Microsoft about the benefits to customers."

Some other software companies take a looser approach to CALs, which can save larger businesses a bundle of money. Apple Computer, for example, licenses Mac OS X Server in 10-user and unlimited-user versions. Apple also offers a reduced-cost, three-year upgrade option. The 10-user version costs $499 and the unlimited version, which includes use as a Web server, costs $999.

Windows 2000 Server with 10 CALs, by contrast, costs about $1,100, and for 25 clients, $1,600. For Web server use, businesses would need to pay about another $2,000 for an unlimited Internet-access license.

This Internet-access CAL also will be revamped under the new Windows .Net Server 2003 program. Microsoft is replacing the Internet connection license with something called an "external" connector option. The company apparently found no licensing option that took into account access by business partners to a server over the Internet.

"They did not have a good way for business partners to be licensed," Park said. "They grouped the Internet users and business partners."

Microsoft has not yet released pricing for Windows .Net Server and has not indicated whether the licensing change could lead to a price increase.