Small businesses struggle with office upgrades

Charles Gelm thought he had a handle on managing software licenses. A network engineer at Ladd Industries Inc. in Kettering, Ohio, Gelm has worked with resellers to upgrade his company's 40 licenses for Microsoft Office Small Business Edition (SBE) through several iterations, each time paying a reduced upgrade fee rather than purchasing an entire new copy of the software. But last October Gelm got an expensive surprise: Microsoft Corp. is discontinuing the Small Business Edition, forcing customers to upgrade immediately or lose the opportunity.

Also, customers can no longer make a "lateral upgrade" that lets them change their current version of Office SBE into the current version of some other edition that can be upgraded. Faced with an October 31, 2001, deadline, Gelm felt trapped into a quick decision with expensive consequences.

"Until then, we had upgraded when we thought the company needed to," Gelm says. "But now our ability to upgrade had been hampered--it was upgrade 'now or never' and we chose never. There were dates you had to comply with and we decided that we just weren't ready."

License redux

Upgrading from Small Business Edition to Office XP Professional Edition by that deadline--subsequently extended to July 31, 2002--would cost Gelm's company around US$200 per license, or $8000 for its 40 affected machines. Under Microsoft's new policy, the same upgrade will cost around $330 per license, or $13,200 for the company. Single licenses of Office XP Professional Edition cost $579, and Office 97 or Office 2000 users can upgrade a single copy for $329--so Ladd Industries essentially faces losing its small-business volume licensing deal.

The real sticking point in Gelm's decision to pass on the upgrade is not simply the timing, he says. He was reluctant to make a long-term commitment on short notice. Microsoft requires a two-year contract with Upgrade Advantage, the name of the upgrade plan that is now rolling into Software Assurance, a new Microsoft volume licensing program. The new plans were announced with the release of Office XP last May. Many businesses became aware of them as their licensing deadlines approached.

Microsoft's new plan drops Office 2000 SBE for the new Office XP Professional Edition, and gives the licensee access to any new versions of Office released during the next two years. Microsoft says the new policy is driven "by customer requests to upgrade from Office SBE to volume licensing." The company acknowledged in May that the change is also an attempt to keep users running the latest versions of its software. The licensing contract is likely to involve downloadable upgrades in the future, Microsoft acknowledges.

Microsoft won't say how many customers have made the switch, even with the conversion deadline extended to this summer. When Office XP shipped, Gartner Group analysts estimated that about 15 percent of Office users upgrade to new versions of the suite each year. The research firm said then that its research found roughly 10 percent of Microsoft's Office customers were still running Office 95, the first major release of the desktop productivity suite. Another 55 percent were running Office 97, and about 35 percent, Office 2000. Microsoft said then that about 40 percent of its customers use Office 2000.

Expensive options

Microsoft maintains that the new licensing approach better reflects small businesses' upgrade patterns. "We made these decisions based on the buying habits of small businesses," says a Microsoft spokesperson, adding, "Our market data has shown that the majority of small businesses acquire new versions of Office when purchasing a new PC, and that many small businesses choose Office XP Standard or Professional as their primary suite instead of Office XP SBE."

The bundled applications also vary among the different editions of Office. In the Standard Edition, PowerPoint replaces Publisher (which comes with SBE). If a small business needs Publisher, it still can obtain Office XP SBE preloaded onto new PCs. If one takes this route, though, the upgrade path may become rocky.

After August 1, 2002, the only way to upgrade Office SBE will be through the PC vendor who preloaded the software suite, says the Microsoft spokesperson. The catch: A future upgrade of the software may require buying an entirely new PC. In fact, several PC vendors confirm they have no plans to offer software-only upgrades to the Small Business Edition--but they'll gladly sell a small business a new PC with the suite preloaded.

The usefulness of the policy change is a matter of perspective. Making a small business commit to a minimum number of licenses over at least a two-year period removes uncertainty about pricing, Microsoft says. Gelm sees it as limiting his flexibility.

It also nudges small businesses into licensing practices more common to large companies. Microsoft contends its changes are an attempt to simplify the licensing and upgrade picture. For some small businesses, the new policies make things more difficult, or at least complicated.

That's how Charles Gelm sees it. "I don't think [Microsoft] set out to make it hard, but some of the things they've done have, in fact, made it hard for small businesses."

Matt Berger of IDG News Service contributed to this report.

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