By Craig Horrocks

On Wednesday the 3rd of April our firm filed a complaint with the Commerce Commission against Microsoft over its new Software Assurance programme.
Details of that complaint are covered separately in Computerworld. The complaint is available for download at: Commerce Commission Complaint

We filed the complaint because Software Assurance will affect anyone with more than a few licenses of Microsoft products. We love our Microsoft software. We like our New Zealand Microsoft team. We don't however, like being Microsoft customers, because with Software Assurance we are being told, not sold.

Software Assurance is all about upgrades.

Traditionally, people who buy software licenses expect an upgrade path in the form of the ability to purchase later versions at an upgrade price which recognises the existing customer's investment in the software.
Upgrading your Microsoft software has been in the past driven by you wanting to update or your having to update or your being in a position to afford to update. In other words, upgrading has been about you, as a Microsoft customer, making a decision in your own interest.
Software Assurance is marketed as 'software-as-a-service'. Microsoft say that we, their customers, do not want upgrades as a product but want upgrades as a service.

Software Assurance, we hope our complaint demonstrates, is less about changing upgrades from being products to services (assuming that is what customers want) but about Microsoft moving to a different cashflow model.
Locking a customer into a two-year guaranteed income stream is much better than being reliant on customers deciding that an upgrade is good value before they spend their money. Being paid and not having to deliver anything is even better!

It is this aspect of being told, not sold, that is the foundation for the complaint.

What other supplier in the world, other than possibly government through taxation, can ask you to pay for something which is not defined and if nothing is delivered still claims you receive a benefit?

We say 'possibly' in the case of government because democratic governments face the wrath of voters if they don't deliver. Just consider how politically sensitive delivery of healthcare and education are for most governments. Microsoft has no constituents other than its shareholders - or does it? Surely its existing licensees have some rights given the huge investment so many of them have made in basing their operations on Microsoft's product?

Microsoft is a company that has a culture of believing in itself - in it competitiveness, in its innovations, in its role in the future of computing. The energy and sense of purpose is legendary and continues in so many areas one could be excused for thinking that Microsoft is beyond any mere customer's, or for that matter sovereign-state's, control.
But like any large company, Microsoft is neither perfect nor immune from mistakes.

And we believe Software Assurance is a mistake.

Software Assurance 'assures' the right to an upgrade but does not 'assure' that there will be any software delivered against that right.
To assure is to make certain. Software Assurance does not deliver software upgrades with certainty. There are no service levels, there are no minimum deliverables, in fact Software Assurance promises nothing other than that the customer has the right to upgrade, if Microsoft releases any upgrade.

At the most basic level Software Assurance is a message to Microsoft customers that we interpret as being something like 'Customer, we at Microsoft make the rules and you have to play by them' and the new rules are 'you buy in advance and take what we give' or 'you loose your rights to upgrade'.

That would be okay if Microsoft was not in the position that it now is - as an monopoly supplier of upgrades to its customers and an essential supplier to most SME's (SmallMediumEnterprises) given the dominant market share for Windows and Office.

Ironically, and indicative of how Microsoft may have lost interest in at least some of its customer segments, Microsoft is reported to be spending $US 25 million on an advertising campaign with Unisys called "We Have The Way Out". (www.wehavethewayout.com ) This campaign, directed at convincing data centre operators that the Microsoft Way is the best way in for scalable servers. In this segment which is not yet dominated by Microsoft, Microsoft is focused on selling the competitive benefits of the Microsoft Way.

In contrast SME customers could be forgiven for believing that the Way Out for them appears to be that once you are in, there is no Way Out. Investment in operating systems and desktop applications software is an investment for most SMEs that can only be exited with impossibly high switching costs.

Microsoft, having built the Windows server line of products out of the SME user base, and having completely conquered that market, appears to sees the SME market segment only as an 'annuity' opportunity to be harvested through 'Software Assurance'.

Our complaint is about that exercise of market power.

Our complaint is about telling Microsoft that loyal customers still need to be sold, not told.

Craig Horrocks is a partner in Clendon Feeney's technology law team. This article, together with further background comments and links to other web sites can be downloaded from Clendon Feeney's web site

Questions and comments are welcome to techlaw@clendons.co.nz