Time waits for no one, not even Microsoft

Delays in delivering key software--such as the next version of SQL Server and the new Windows--are causing headaches for customers and developers, and for the company itself.

Ina Fried Former Staff writer, CNET News
During her years at CNET News, Ina Fried changed beats several times, changed genders once, and covered both of the Pirates of Silicon Valley.
Ina Fried
8 min read
Microsoft sees its near-term future as a series of "waves" of software that are key to its growth over the next couple of years. But with those waves slow to reach shore, the company--and its customers--may feel like they're caught in a riptide.


What's new:
Microsoft's delays in delivering key software products, such as Yukon and Whidbey, are causing headaches for customers and developers.

Bottom line:
The software giant has been vague about whether it will offer customers additional perks in update licenses affected by the delays.

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For months, Microsoft has talked about a "Yukon" wave of products that would hit this year and a "Longhorn" wave that would follow a year or two later. The first wave is tied to the next version of SQL Server, known as Yukon, as well as to updated developer tools, known as Whidbey.

Those products were slated to arrive later this year, but Microsoft said Wednesday that the updates won't come until sometime next year, about six months later than the latest expected release date.

Meanwhile, the company won't even offer a date for the following wave, which is centered around Longhorn, the next version of Windows. Microsoft has said that product will pave the way for a new server OS and a new version of Office, as well as various server software products and developer tools.

These delays and lack of clarity on ship dates are creating challenges for both Microsoft and its customers. Pushing back the delivery of Yukon and Whidbey will cause cascading delays to Microsoft's server applications and tools, although it will not be on the order of six months, according to the company.

"Everything that SQL Server touches, which is a lot of products, will be impacted, but it's not as though it's a major reset for any of those products. There's not a six-month domino effect for every other product," said Harley Sitner, senior product manager in Microsoft's Windows Server System group.

Sitner said individual development teams that rely on SQL Server or components of Visual Studio will have to "work through" the delays and adjust their own schedules accordingly.

Some Microsoft customers have also felt the ripple effect. Financial services company Reuters always allows for some slip in schedules, but the latest delays are disappointing, said Bill Evjen, the technical director of development at Reuters.

"There are so many new and outstanding features in this developer set (Whidbey)," said Evjen. "We'd love (our) clients to start utilizing these features but now they're going to have to wait."

Customers with annuity licensing contracts will also feel the effects of the latest product delays. Microsoft has spent the last few years convincing large companies to switch from one-time software purchases to Software Assurance license agreements that compel them to spend 25 percent of the overall cost of a software product per year for three years, in exchange for getting all updates to the product.

The assumption was that such deals would cover at least one major upgrade. In many cases, though, that may end up not being the case, said Gartner analyst Alvin Park. The situation could be particularly frustrating given that some customers initially saw the Software Assurance effort as a way for Microsoft to raise prices and strong-arm them into upgrading before they really needed to do it.

Although Microsoft has offered Software Assurance customers other perks beyond the upgrade rights, Park said most customers "don't see the value in the components that Microsoft has added. They have a right to feel they are not getting value for expenditure."

Bad timing
That issue could hurt Microsoft's efforts to convert more of its customers to ongoing maintenance deals from one-time license purchases.

"This (delay of Yukon) comes at a really inopportune time for Software Assurance renewals," said Directions on Microsoft analyst Paul DeGroot. He noted that, as Microsoft's older Upgrade Assurance program was coming to an end in 2002, many customers rushed to sign up. Those upgrade rights will expire in 2004 and Microsoft has already said it expects a relatively low rate of renewal--creating a $1.1 billion "hole" that the company must fill through other sales initiatives.

Now the delay in Yukon and Whidbey could put a further crimp on Microsoft's licensing effort. "This announcement does not improve that outlook," DeGroot said. "It's obviously likely to reduce" renewal rates.

Some months ago, Microsoft executive Jim Allchin was asked how the company might deal with this issue as it related to Longhorn.

"His comment was, 'We will do right by our customers,'" DeGroot said. "Nobody knows what that means, and he did not explain it. This (delay) may be our first opportunity to see what Microsoft means by doing right by its customers."

A Microsoft representative said on Friday that the company will handle customer issues on a case-by-case basis. The company noted that Microsoft, like other software makers, does not guarantee upgrades as part of its licensing program. Customers with concerns should contact their Microsoft representative, the company said.

"Every customer has different needs," said Sunny Jensen Charlebois, a product manager in Microsoft's worldwide licensing and pricing department. Charlebois said that although some customers may be upset that they didn't get an upgrade, there is no "one-size-fits-all" way to deal with such issues.

Steven Edwards, vice president and information technology director at architecture and design company Solomon Cordwell Buenz & Associates, is one Microsoft customer who feels shortchanged by his Software Assurance contract.

Edwards purchased Software Assurance for his desktop software and Exchange e-mail server software, but when his company wanted to upgrade to Exchange Enterprise, it was told to purchase a new license.

Access to upgrades on an existing contract was the main reason that he chose Software Assurance, Edwards said. Despite improvements, he thinks the plan is too rigid in how it can be used.

"They still haven't simplified it enough. It's still not flexible enough so that they don't end up ticking off someone. I'm ticked off. They did me wrong," said Edwards. "There are still really big issues in how licensing works."

Gartner's Park thinks Microsoft should give those customers that didn't get a major upgrade a free upgrade to the next major release, but he said Microsoft probably won't do that.

"We at Gartner had called upon Microsoft to offer an upgrade guarantee," Park said. However, "other vendors don't offer upgrade guarantees, so I don't think Microsoft will either."

Microsoft executives argued that Software Assurance is valuable to customers because Microsoft provides more than only the right to get major upgrades, such as product updates and support. Whether to go with an annuity program such as Software Assurance is up to each individual company, executives said.

"We never guaranteed that buying Software Assurance would get you a product upgrade," said Tom Rizzo, director of product management for SQL Server at Microsoft. "If (customers) don't think there is value in Software Assurance, we don't require you to buy it."

Rizzo said there are "shades of gray" where Microsoft may consider giving customers an upgrade beyond the date when their contract lapsed.

Even if the company were to offer Software Assurance customers more, it could backfire, fueling a perception that customers should wait to upgrade until Microsoft sweetens the pot again. Microsoft has already expanded the SA program to include added discounts, extended support, home-use rights and other perks.

"They are kind of training customers to wait as long as possible because Microsoft is likely to come back with a better deal," DeGroot said. That in turn makes it tough on Microsoft's sales force. "It's very hard to make your quarterly quota if customers keep saying, 'I will wait until next quarter or next year,'" he said.

Fuzzy picture
Another impact of the various delays is to add further uncertainty to Microsoft's already cloudy product road map. Programmers were told at last October's professional developer conference to start working on Longhorn, though the company now offers no timetable of when the OS might ship.

Furthermore, the company has talked recently of releasing intermediate versions of its desktop and server operating system before Longhorn--something it previously said was not under consideration.

With Yukon and Longhorn, Microsoft tied nearly all its key product releases to one another, something analysts say adds risk to the development process.

"One of the things that is a very critical issue in software product management is dependencies," said DeGroot. "'Can I ship my product or do I have to wait for something?'"

The cascade effect is particularly noticeable on Yukon. "We called Yukon (SQL Server) 'the mother of all dependencies' because it just affects so many other products," DeGroot said. "It affects the desktop operating system; it affects the server OS; and it affects a lot of server software--everything from Project and BizTalk to Commerce Server."

Longhorn, meanwhile, represents not only the next major release of Windows, but is also linked to the next version of Office, meaning that any further delay could hurt both of the company's cash cows.

How the Yukon delay will affect SQL Server sales is unclear. A Merrill Lynch survey released March 8--just ahead of the delay announcement--found that, as of February, 62 percent of CIOs surveyed planned to purchase additional SQL Server licenses in the next 12 months, up from 40 percent in December.

Financial analyst Charles DiBona at research firm Sanford C. Bernstein predicted the delay of Yukon will have a "modest" impact on revenue timing and will not change anticipated earnings. He cut his forecast for Microsoft server product revenue by $100 million for fiscal year 2005, which ends June 30 of that year, and $30 million in fiscal year 2006.

Microsoft developers--the main customers for Visual Studio and SQL Server--have also voiced their opinions regarding the product delays. The Whidbey release of Visual Studio will have several common components, including Microsoft's .Net Web services software, embedded in both products.

Some programmers said they would rather Microsoft focus on quality than ship the product too early, so the delay of Whidbey and Yukon might provide more time to plan a migration to the new technologies. But other developers said they wanted access to Whidbey sooner rather than later.

Significant delays from Microsoft can affect customers' own product planning. Reuters, for example, is planning a release in late 2005 that relies on Whidbey tools, so the company should be all right as long as there are no further delays.

But, said Reuters' Evjen, "When (Microsoft) comes out so strong saying the release dates are going to be one way and then that's not true, it does make it difficult."