A SaaS Lesson for Microsoft: Simplify the Licensing

Whether an enterprise has purchased a SaaS solution or still kicking the tires, the feedback I continually get from clients is, "Boy, you gotta like the simple licensing model."

In the office applications space, Microsoft has built an empire out of complex licensing. The sales rep patter goes like this. "Oh, you want e-mail? Well, you're going to have to buy a Microsoft Exchange Server license, a number of Microsoft Outlook licenses, and then a group of Client Access Licenses (CALs) so the Microsoft Outlook clients can legally talk to the Exchange Server. Or, if you want other stuff, we could set up an Enterprise Agreement and you could get a discount on a wide variety of Microsoft products. Let me fire up my spreadsheet so I can figure out the discount we can give you."

In other words, an enterprise is sent back in time to more than 160 years ago, when buyers and sellers haggled over prices. (For the historians in the crowd, fixed prices and price labels on products arrived in the 1850's, coinciding with the arrival of the first big department stores: Bon Marche, Macy's, and Marshall Field.) When enterprises look at the time they spend with Microsoft negotiating terms (weeks or months) versus the time they spend with Google  (seconds: multiply $50 per user per year by the number of users and then click "Yes"), they much prefer the Google model.

To highlight the real world frustration with Microsoft's pricing model, following is an excerpt from an e-mail sent to me by a Burton Group client at a Fortune 500 company:

MS has miles to go in terms of simpler pricing. That's another thing I'm looking for this year. We have spent 6 months now trying to master SharePoint pricing and even our MS account team can't give a clear answer. Server OS licenses. MOSS license per server. Product license - Project web access, Excel calc services... - are they for EVERY server in the farm, or only those where we've enabled that product? Heap-o-synergy design means we MUST install every piece of software on EVERY web & app server in the farm, regardless. Then the CALs - Server OS, MOSS, MOSS Enterprise, Project, Excel... Compare with Google - $50 / year / person buys everything on the menu, and no hardware required. Archiving is extra. This means everything Google introduces is instant value-add for us without complicated arithmetic or lengthy justification, budget, PO, invoice... cycles.

Microsoft is not the only offender here: any large enterprise software vendor--IBM, Oracle, SAP--is "easy pricing" challenged. However, given Microsoft's new mantra--software and services--it's going to have to figure out how to simplify its pricing sooner rather than later. The whole point of SaaS is that it's instant on: you don't need to spend weeks or months buying the servers or installing the software. However, if you still spend months haggling over the pricing, one of the major advantages of SaaS--fast deployment--goes out the window.

Microsoft has said that in the long run it wants to get where whether you're running software or services really doesn't matter. For example, headquarters and large subsidiaries could be running software, while smaller subsidiaries could be using SaaS solutions. Furthermore, moving back and forth between the delivery models--e.g., a fast-growing subsidiary decides to move from SaaS to software--would be a non-event. Simplified pricing would go a long way to making that vision a reality.

Comments

[Tony Zuanich]

There is a bigger picture in play right now that many people may not see. Simply follow the money of where and why the large software companies have made money for the last 3 decades. SaaS has forced many "incumbents" to take a hard look into the future. What is clear, is they have all come away knowing if we don’t move to the improved economic model of SaaS for the consumer, someone else will and un-ravel the licensed software revenue of the past. Let the race begin ladies and gentlemen! The money has been made in large business applications, and there is no reason why these applications can’t be SaaS other than lack of vision, or arrogance.

The fight will play out as Oracle, SAP, IBM, MS, and Google proliferate their SaaS models. Then, adding functionality will become the chess game of acquiring smaller SaaS businesses. The next 5 years should see an interesting time of M&A activity. Place your bets on the best business applications that solve real problems, and the guys with the most money. As for the IT department, get with a SaaS or end up in phone support.

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