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Licensing fees a feature of Windows 2000, researcher says

Microsoft's new corporate operating system could force many businesses to pay thousands of dollars in hidden costs, according to a research firm that has slammed the company's pricing policies in the past.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
3 min read
Microsoft's new corporate operating system could force many businesses to pay thousands of dollars in additional licensing fees, a research firm said today.

GartnerGroup, which has slammed Microsoft's pricing policies in the past, said that charges built into how Microsoft sells its software would affect a large percentage of companies upgrading to Windows 2000, which was unveiled today. Many of these fees are not up-front, said analyst Michael Gartenberg.

One important hidden cost is the client access license, essentially a passport that allows a Windows 2000 desktop to connect to Windows 2000 servers and take advantage of programs like Active Directory, Gartenberg said.

Client access licenses, which are required to allow a Windows 2000 computer to access a server, represent an additional cost. The client access license can cost between $5 to nearly $190 per computer, according to information on Microsoft's Web site. The fee can be adjusted because of volume discounts. Still, it represents an incremental fee above what customers pay for Windows 2000.

Customers typically pay much more for versions of the operating system that run on server computers, but the cost of that software is highly visible. Client access licenses suggest the expense of using Microsoft software can unexpectedly pile up quickly.

The client access license, which isn't advertised, appears to exist to drive revenue, Gartenberg said. "It's how Microsoft raises prices without raising prices," he said.

Deborah Willingham, vice president of marketing for Microsoft's business and enterprise division, said the access license isn't new and the price remains the same as with Windows NT 4.0, Windows 2000's precursor.

Most customers pay less than the official prices, she added. Windows 2000: The next generation Large customers often acquire software through complex, long-term licensing agreements and get discounts because they are buying software in volume, she said.

Customers may end up paying Microsoft more in the future, she said, but that would be because they replace Unix servers with Windows 2000 servers and Windows 2000 client access licenses.

Under the e-commerce vision promoted by Microsoft, Intel and most of the PC companies, corporations running Web sites will shift from using high-powered servers to masses of cheaper, replaceable servers based on Windows 2000. Large, ornate servers will still exist at the center of corporate computing operations, but there will be far fewer of them.

But while the hardware might be less expensive, each server will require a separate copy of Windows 2000, assuming the customer wants to go with Microsoft. Because many Web sites install several hundred small servers, the bill for operating systems alone can run into the hundreds of thousands.

Despite the costs, companies will adopt Windows 2000 over the rival, freely available Linux operating system because of the service and technical support that exists around Windows, Willingham asserted. "I don't know of any organization that is going to put a 'mission-critical' application on an OS without a company to stand behind it," she said.

Microsoft also is promoting its "Select" form of customer licensing, Willingham said, another move that could lead to increased revenue for Microsoft. Select licenses are valid for two years, effectively locking customers into Windows purchases for 24 months.

Alexa Bona, a GartnerGroup analyst in London, told Reuters: "There are probably less than 10 people in the world who really understand this--and that's because Microsoft (buries) it deep into their terms and conditions and make it very difficult to understand."