Pound for pound, Microsoft software licenses have to be some of the most frustrating documents around. They are complex, they are long, and software buyers at big companies hate them. Perhaps even more than they hate Oracle licensing agreements, which is really saying something.
So, when Microsoft’s CIO Jim DuBois told the Wall Street Journal last week that the vendor has boiled down a key contract from 250 pages to 8 pages, buyers took notice. But they didn’t believe it.
Paul DeGroot, a Microsoft (MSFT) licensing expert and CEO of Pica Communications, said that the company’s year-old Microsoft Product and Services Agreement (MPSA) is indeed a workable 8 pages. The catch is those 8 pages are just the tip of the iceberg.
“It’s clear from the published comments that the Microsoft CIO has little idea of what a Microsoft contract really looks like,” DeGroot told Fortune. There’s a heck of a lot more than eight pages to read and some of those other pages contain “very punitive audit language” as well as the usual legalese, he said. For those not immersed in the niceties of software licensing, if a company fails a software audit, which is meant to ensure that all software in use is properly licensed, it can cost a lot of time and money.
The true story about Microsoft’s current contracts, according to comments DeGroot made on the Journal story is this:
… all in all, any customer who wanted to collect all of the language, rules and product choices relevant to their “8-page” MPSA. is looking at collecting about 500 pages of documentation. If Jim DuBois ever actually reads his own company’s contracts, he’ll be one of a very few people in the world ever to do so. His next reading material will probably be a list of open positions elsewhere in the company. A Microsoft contract has a bunch of components, one of which is the MPSA which is 8 pages.
An executive at a major U.S. bank who handles software licensing agreed with DeGroot’s assessment. First, he noted, the Microsoft contract is the only software license agreement he’s never been able to read in one try. And he reads them all.
Second, the terms are, in his words “ridiculous.” For instance, Microsoft charges one-third the cost of the licenses for upgrades. And, technical support is charged separately. Together those two components can be 40% to 45% of the price of the software.
Oracle(ORCL) support, by comparison is 22% of the list price. Additional support on older versions of Oracle products can be another 10%.
The cost differential between the two vendors may be almost a wash given that Microsoft bases its charges on the actual discounted price paid while Oracle calculates it based on the list price even though discounts maybe quite steep.
But it’s not just about the money. It’s about the contracts themselves and the quality of the service delivered. And that’s not a pretty picture, apparently.
The bank executive, who is not authorized to speak to the media, said the support his company gets from Microsoft is slow and getting slower. It compares unfavorably in his view, to Oracle support.
He noted that many software vendors charge 15% to 25% of the total licensing fees to cover maintenance and support versus 40% to 45% by Microsoft.
Pricing and other details vary by company but make no mistake, Microsoft has a problem here. As noted in the Journal, when CEO Satya Nadella announced plans to simplify licensing at a tech conference last November, the audience cheered. For many years, big businesses which rely on Office on the desktop; SQL Server databases, Exchange Server for mail etc – have felt the real reason to upgrade their software is not to get new features and functions, but to stay legal. As mentioned above, there’s nothing like a software audit to screw up the works.
Part of the issue may be the aforementioned MPSA contracts, which bring support for both cloud and on-premises software under one umbrella, said Scott Jenkins, practice director of Logimethods. Since these contracts were rolled out last year, his company had to hire a Microsoft licensing specialist to help with customer questions, he noted.
In response to a request for comment, a spokeswoman referenced this blog post from a year ago outlining new and streamlined online services terms that work across all of the company’s services.
Rob Horwitz, CEO of Directions for Microsoft, gives Microsoft credit for rewriting long-standing contract wording that even company officials no longer understood, but that this is a work in process.
Fixing licensing itself is akin to simplifying the tax code, he said. It may be doable, but it’s a long, hard road, and riven with unintended consequences. “Sure a flat tax is a great concept, It’s simple but a lot of people get upset once they realize they’ll end up paying more.”
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