• Chart: License and Upgrade Costs Through Retail, OEM, and Volume Channels

Starting with Office 2003, Office applications purchased from OEMs will be eligible for upgrades through the Software Assurance (SA) offering in Microsoft’s volume licensing plans. The move could increase Office 2003 adoption among small volume licensing customers who do not purchase Office in enough quantity to be eligible for large discounts, as these customers see an opportunity to purchase low-cost, preinstalled versions of Office without losing the benefits of their regular volume licensing program. Purchasing SA for the OEM version of Office Professional also gives customers an immediate upgrade to Office Professional Enterprise Edition, which includes an extra application, InfoPath.

Adding Applications

Until now, the only OEM software products for which customers could purchase SA were the desktop PC OS and OEM server products. (Full versions of the client OS are not sold through volume licensing: all client PCs used in volume licensing must already have either an OEM or retail Microsoft OS.)

The new policy covers two editions of Office 2003 sold through OEMs: Office Professional Edition and Office Small Business Edition (SBE). Because Office Professional Edition 2003 is not offered through volume programs, customers who purchase SA on this OEM application gain the right to use the Professional Enterprise Edition, which includes InfoPath, a new Office application for building forms that display and capture XML data.

Office XP and earlier versions are not eligible, but Microsoft says new Office applications made available through OEMs after the release of Office 2003 will be eligible for SA.

What SA Costs and Adds

To take advantage of the change, customers must have an existing Open authorization or Select agreement or must start a new agreement. Applying SA to Office purchased from an OEM will cost 29% per year of the volume price (not the OEM price) of Office for which the customer would normally be eligible, and must be purchased for the number of years remaining in the customer’s volume agreement, including the current year.

Customers who purchase SA for their OEM software are eligible for a number of additional benefits, including the following:

• Rights to upgrade to any new version of the product released during the period for which they have SA coverage
• Educational and training tools, such as TechNet, the Microsoft eLearning Library, and training courses (in certain volume programs)
• Home use rights, which allow employees to purchase copies of Office for home use for about US$30 each.

Licensing Prerequisites

Small businesses that purchase SA on at least five Office licenses can use this offer as an opportunity to start a new Open Business or Open Value authorization, which will give them discounts of about 20% on other Microsoft software (compared with regular retail prices). If customers start a new Open Value agreement, they can spread their SA payments over three years.

Customers have 90 days from the time they purchase the OEM software to purchase SA through a volume license agreement.

Customers who purchase Office through certain volume licensing programs are advised to not purchase OEM versions of Office. Both Enterprise Agreements and the Open Value program with the companywide option allow customers to purchase Office licenses for every client in their organization. Customers who do this are already paying for Office through their volume licensing program, and will be paying for Office twice if they obtain it through OEM channels as well.

Value for Customers

Customers need to consider several factors when deciding whether they should bring OEM Office versions into their volume licensing program. In addition to the benefits gained through SA, customers must consider license pricing, upgrade pricing, and payment schedules.

License pricing. Customers—particularly smaller organizations not eligible for large discounts—will find that OEM or retail pricing is competitive with volume pricing. (See the chart "License and Upgrade Costs Through Retail, OEM, and Volume Channels".) For example, in early Sept. 2003, Dell was offering Office Professional for US$299 if purchased at the same time as a new PC—-a better price than most small customers could get through a volume license plan. Consequently, smaller customers could find this program the cheapest way to buy Office 2003 with upgrade rights to the next version.

Upgrade pricing. Retail upgrades for Office Professional have an estimated retail price (ERP) of US$329. SA on Office Professional will cost between about US$105 and US$395, depending on the type of volume agreement and the number of years for which a customer must purchase upgrade rights. This means that SA could end up costing more than buying the next version of Office at full retail prices.

For example, a small customer purchasing through Open Business will pay about US$214 for up to two years of SA, but this SA coverage expires at the end of their Open agreement and must be renewed for another US$214. The next version of Office beyond Office 2003 may not appear before 2006, which means Open customers who purchase SA on Office 2003 this year could end up paying for four years of SA—a total of US$428—to get the next version of Office to get the next version, which is more than the OEM version cost them. These customers should consider opening an Open Value agreement, which goes for three years before renewal, and would cost about US$365 over that time for each copy of Office. They could also forego SA purchase entirely and simply purchase a retail upgrade when they need it in the future. However, with the last choice they will not get the additional benefits of SA, such as home use rights.

Payment schedules. Retail and OEM software and upgrades must be paid for at the time of purchase (although many OEMs offer financing on purchases). Customers who purchase SA for OEM software under certain license agreements, in contrast, can spread the SA payments over up to three years or can get low-cost financing through Microsoft deals with lenders.

However, SA payments on OEM software begin 90 days after the software purchase, so customers who purchase Office 2003 through an OEM this fall and want to cover it with SA will begin making upgrade payments in 2003 or early 2004. A retail upgrade, in contrast, can be purchased for retail and OEM software at any time, and will typically be purchased when the customer wants to upgrade.

Microsoft’s Strategy

The new policy gives customers an option that they did not have before. Until now, customers have had to make the choice between lower OEM license costs or the advantages of SA, such as the ability to spread payments out over several years.

By opening this possibility, Microsoft risks little, and could see some gains in the number of customers purchasing SA and adopting Office 2003. For example, small businesses who value the eLearning or home use options available through SA can purchase low-priced OEM software and then purchase SA rights through a volume license program.

Resources

For a description of the benefits available through SA, see "Software Assurance Improved" on page 24 of the July 2003 Update.

For a review of Office 2003, including retail pricing, see "Outlook Leads Office Suite Improvements" on page 15 of the Sept. 2003 Update.

Details about the Office Professional Edition 2003 and Office Small Business Edition bundles are available at www.microsoft.com/office/Preview/choosing/default.asp.