Thursday announced what many had expected: It would rejigger the way it sells software licenses to businesses.
The software giant said starting Oct. 1, it will give business customers the "option" of paying for software as a service. Under that plan, business customers would buy an initial three-year license to use the company's products, and then renew it for another three years or annually. It's a move that will drive many companies to renew licenses every three years, rather than just pay for an upgrade.
The company contends that its new way of selling software will result in a reduction or no change in the amount that 80% of its customers now pay for their software. But analysts have said the new subscription model could end up costing customers more. At the very least, it will solve Microsoft's problem of selling software to businesses that use it indefinitely because they don't find new versions compelling enough to warrant an upgrade.
Currently, customers who buy software licenses from Microsoft get to use them "perpetually," even after the initial term of their license expires. They only pay for upgrades if they decide to get the company's latest version of the software. Under the new program, Microsoft will charge them every three years whether they want to get the new software or not, just to allow them to keep using the software.
But at first, under its new model, Microsoft would likely have to cut software prices for customers, who otherwise might see themselves losing in the change.
"In terms of revenue magnitude, we believe the change would have mixed implications," wrote
analyst Henry Blodget, who rates the company accumulate, in a research note. "A minor negative impact over the next three years (the company would likely have to offer a price cut to placate customers), but positive implications thereafter." (Blodget's firm hasn't done recent underwriting for the company.)
The move represents Microsoft's latest push in its .Net initiative, the company's plan to use the Internet to sell software as a service rather than in shrink-wrapped boxes on store shelves. That, in turn, would also put Microsoft's revenue recognition model more in line with so-called enterprise software companies such as
, which have always targeted businesses. While Microsoft has traditionally been viewed as a consumer-oriented software company, it's been casting itself recently as much more business-focused.
"As Microsoft has moved from a retail, shrink-wrap approach to more of an enterprise focus, our licensing programs have also needed to change," said Bill Hennigsgaard, a Microsoft VP, in a statement.
The company also said it was changing the requirements businesses would have to meet to qualify for its enterprise license agreements. Instead of a minimum of 500 PCs, a company would only need 250 PCs to fit into Microsoft's plan.