This story was written by Keith Dawson for the Industry Standard's Media Grok email newsletter. It is archived here for informational purposes only because The Standard's site is no more. This material is Copyright 1999-2001 by Standard Media.

Renting the Software Experience

May 08 2001 08:23 AM PDT

As Microsoft prepares its .Net offerings, it tries to get customers used to the idea of paying for software forever.

By the time Microsoft begins rolling out its software-as-a-service .Net offerings next year, it will need its customers to buy into the idea that they don't own the software they use. So analysts are closely watching the company's early moves toward asking its customers to pay in perpetuity for the privilege of running Microsoftware - and the media are reporting every nuance the analysts turn up.

Microsoft's Office XP is due out later this month. Last November the company said it would offer one-year subscriptions for the product that were expected to be cheaper than the shrink-wrapped version. CNET reported that Microsoft has scaled back its subscription plans and will initially offer the package in only a few unnamed countries. The Wall Street Journal, crediting CNET's lead on this story, added that a Microsoft spokesman said the company had never promised to roll out subscriptions early in any particular markets.

CNET interviewed Guernsey Research analyst Chris LeTocq and reflected his concern that subscriptions could hurt Microsoft's short-term revenues. With subscriptions "you build long-term users, but in the short term you take a hit," LeTocq explained. CNET's story also nodded to Merrill Lynch analyst Henry Blodget's revised revenue projections for Office. Blodget wrote, "We doubt that Office XP can drive double-digit revenue growth."

A related Microsoft story started in a conference call with USB Warburg analyst Don Young. Reuters reported that Young had found several large enterprises, mainly in Europe, at which Microsoft had offered to buy out "perpetual use" contracts. These contracts typically allow the corporate customer to use Microsoft software without restriction after a period of three years. Reuters located two other unnamed analysts to confirm that Microsoft is beginning to shift big corporate customers over to one-year renewable licenses.

CNET again called upon analyst Chris LeTocq, this time to explain that one-year subscriptions would isolate Microsoft somewhat from the effects of slowdowns in PC sales.

The Journal noted the one-year contract development in the final paragraph of its Windows XP coverage. Reporter Rebecca Buckman quoted an unnamed Microsoft spokesman: "We're always looking at ways to improve our licensing in response to what customers want." Apparently, customers want the opportunity to pay for software over and over, forever.

Microsoft Shelves Office XP Subscription Plan

Microsoft Tones Down Its Strategy to Sell Office XP Product in 1-Year Subscriptions
Wall Street Journal
(Paid subscription required.)

Microsoft Deals Seen Boosting Licensing Revenue (Reuters)
New York Times
(Registration required.)

Microsoft May Keep Meter Running on Software