The firm's new software assurance service is billed as simpler but customersare not happy, writes Jamie Smyth

It was a case of third time lucky for Microsoft this week. The software giant finally pushed ahead with a shake-up of its software licensing programme on Wednesday, despite opposition from customers.

After two false starts, Microsoft has ditched its myriad software upgrade programmes for Licensing 6.0, a new scheme that provides software assurance for customers. The scheme, billed by the firm as a simpler approach to licensing, will offer automatic upgrades to the latest software on payment of an annual fee.

It is a shift toward selling software as a service and will reduce some administrative costs of sales. Assurance should also guarantee Microsoft a much more stable revenue stream over the three-year duration of a deal.

This all sounds pretty good for Bill Gates and his Seattle-based software cronies but what about the customers? Many are asking what the scheme will do for them, and some feel, perhaps justifiably, short-changed.

A key point of Licensing 6.0 is that it replaces several existing upgrade schemes that previously offered customers the flexibility to upgrade to the latest version of Microsoft products at a hefty discount, and at a time of their own choosing.

On Wednesday, these customers lost the right to upgrade their software at a discount and will now have to buy at full price or sign up for assurance. In other words, customers will have less choice going forward and may end up paying more for their software.

Microsoft says its scheme will remove the complexity from software licensing. Fair enough. This is often a major bugbear among companies and for some, software assurance may make it easier for them to better plan their IT spending. Fixed annual payments mean customers will know exactly what they have to spend and when they will have to pay.

But for a significant proportion of its customers - the ones whose complaints forced Microsoft to extend twice the deadline for the scheme's introduction - software assurance may undermine their ability to control their own IT budgets. Firms will now be tied into three-year agreements with little room for manoeuvre, making it more difficult for companies to trim IT spending when times are tough.

Neither is assurance as simple as Microsoft suggests. Rob Horowitz, co-founder of the analyst firm Directions on Microsoft, describes Microsoft licensing as "Byzantine" and complex to the point that firms find it impossible to follow the rules.

Chief technology officers in Irish firms would probably concur. Many have spent recent months tearing their hair out as they perform extensive audits of their software. It would be surprising if some had not yet been able to determine whether assurance will cost them more than their previous licensing deals.

But perhaps the greatest problem with Licensing 6.0 is that it will hit some firms where it hurts most - their budgets.

The head of Microsoft Ireland admitted recently that up to a third of its Irish customers would pay more by signing up for the new assurance scheme. And although it is difficult to be precise, research firm Gartner has estimated it could raise prices by 33-107 per cent.

The frantic rush by many firms to use their existing upgrade rights before Microsoft's deadline last Wednesday suggests many will lose out under the new system.

Microsoft's revenues generated from sales of desktop software were up sharply in the last quarter, despite a decline on PC sales. Most analysts pinpoint Licensing 6.0 as the reason for the increase.

But there are signs the scheme has knocked some of the lustre off Microsoft's reputation for supporting customers and a few companies are beginning to revolt against what they view as arrogance by the US firm.

Resistance from blue-chip customers such as GlaxoSmithKline and Prudential made Microsoft extend its deadline for phasing out upgrade programmes twice last year. And media and analyst commentary on the scheme has remained steadfastly negative, prompting concern at Microsoft.

The company is spending $20 million (€20.3 million) to educate its customers better about software assurance to combat what even company insiders admit is a PR disaster. But most of the damage is done. Just last week, the British government, previously a Microsoft supporter, issued a statement directing departments to consider alternatives to proprietary software such as Microsoft's Windows operating system when contracts come up for renewal.

A coincidence? Perhaps. But many Microsoft observers believe Licensing 6.0 is becoming a catalyst for change prompting customers to consider alternatives such as the Linux opensource operating system and Sun Microsystems' new StarOffice software.

It seems software assurance may not prove as lucky for Microsoft as the company first thought.