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 Microsoft gooses Windows XP's custom support prices as deadline nears

'Seems punitive,' says Gartner, which cites costs of up to $5M for first year of enterprise after-retirement support

Computerworld - Microsoft is wielding the big stick of dramatically higher custom support costs as it pushes enterprises to abandon the 11-year-old Windows XP, an analyst said today.

Custom support plans, which Microsoft negotiates on a company-by-company basis, provide critical security updates for an operating system that's officially been declared dead. Windows XP, which still powers about 43% of the world's Windows PCs, is slated for support retirement on April 8, 2014. That leaves 410 days from today for XP users to move on.
According to Michael Silver and Stephen Kleynhans, a pair of Gartner analysts who published a report on XP custom support last month, some companies won't meet the deadline. "Many will not have Windows XP totally eliminated before support ends," Silver and Kleynhans wrote, echoing earlier estimates by Silver that between 10% and 15% of enterprise PCs will still be running XP when Microsoft pulls the plug.
However, Microsoft offers a failsafe of sorts -- "Custom Support" -- that lets companies pay for security patches beyond the normal support lifespan.
But Silver and Kleynhans said that Microsoft has quoted significantly higher prices for Custom Support than in the past.
For some time, Microsoft capped custom support at $200,000 for the first year, payable quarterly so that if a firm finished its migration in less than a year, it would pay only for support through the end of that quarter. In 2006, Microsoft switched to per-device pricing, with a floor of $200,000 and a ceiling of $500,000. Four years later, in 2010, Microsoft modified pricing yet again by capping it at $200,000 for the first year if the corporation had signed up for Software Assurance, the annuity-like program that guarantees companies access to the newest version of a product.
Those prices got tossed out the window, said Silver in an interview today. Microsoft has returned to a per-device model -- $200 has been typical -- and reinstituted floor and ceiling amounts. But those amounts for the first year are closer to what Microsoft was previously charging for the third year of support.
"It's certainly not pretty," said Silver of the custom support quotes for XP, which have ranged from $600,000 to $5 million for the first year.
The higher prices put to rest speculation by some experts last year that Microsoft, faced with enormous numbers of XP PCs still in use next year, would have no choice but to extend free support.
An IT manager, who wished to remain anonymous because he was not authorized to speak on the matter, told Computerworld that Microsoft had quoted his company $1 million for the first year of custom support to cover 5,000 Windows XP machines, $2 million for the second year, and $5 million for the third.
Silver pointed out that the $1 million fit with what he'd heard from other organizations of Microsoft charging $200 per PC for the first year of post-retirement support.
"It is hard to fault Microsoft for wanting to end support for its older products and migrate users onto newer versions that provide a better experience, and potentially revenue for Microsoft," said Silver and Kleynhans in their report.
And it's not like Microsoft sprung the retirement date of XP on customers: It's been hammering the April 2014 deadline for years.
As far back as June 2011, a Microsoft manager claimed it was "time to move on" from XP, while even earlier that year an executive on the Internet Explorer team belittled XP as the "lowest common denominator" when he explained why the OS wouldn't run the then-new IE9.
But the large price increases will bust budgets of enterprises that had expected the older pricing model -- especially those with Software Assurance, who anticipated a cap on custom support costs. "Not having any cap, I think that caught a lot of people by surprise," said Silver.
In their report, Silver and Kleynhans said that the increase "seems punitive."
Silver was somewhat mystified by the jump in costs. One explanation: Microsoft wants to turn custom support into a money maker, rather than simply recover its costs, which has been its philosophy in the past.
"End of the day, it could be a revenue generator," said Silver. "But there's nothing that they've said that proves this is no longer cost recovery. Still, if they create the security fix [for Windows XP] for just one person, they can give it to millions, and make money on it."
And companies running XP are not in a strong negotiating position. "Microsoft has the pricing power," said Silver. "In terms of companies that provide fixes to an OS, the vendor has the monopoly."
Rather than pay Microsoft for custom support in 2014 and beyond, Silver advised enterprises to spend money this year to migrate as many XP systems as possible to a supported operating system. Failing that, IT administrators should consider bringing all XP clients inside the network perimeter to lower the risk of Web-based attacks, or move the applications those XP PCs are running onto a supported server platform.
"But none of these are easy or inexpensive," Silver admitted.
And for all the talk that XP has been a special case -- supported for more than 12 years, two years longer than other editions of Windows because of the launch delay of its expected successor, Vista -- Silver said history could easily repeat itself in early 2020, when Windows 7 exits free support.
Windows 7, which debuted in October 2009, looks to be the next XP, an OS that is so successful that businesses hang on to it until the very end.
"Microsoft may be trying to train [enterprises] with these high custom support prices, but I don't think [enterprises] will really change," said Silver, who expected to reprise his advice, the next time about Windows 7, before the decade's out.

Microsoft enlists Dell to push Office 365 on new PCs

Dell is only one of top three OEMs to bundle Office 365 Home Premium with new consumer computers

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Computerworld - Some major computer makers are pushing Office 365 with their new PCs, but others have stuck with a more traditional bundling tactic of including a factory-installed, single-license trial.

"[Microsoft is] very clearly heading towards driving every consumer towards the Office 365 option that they can, in the hopes of a subscription," said Wes Miller, an analyst with Directions on Microsoft, in an interview Wednesday.
Of the top three computer vendors -- OEMs, for original equipment manufacturers -- only Dell offers Office 365 Home Premium, the consumer-grade subscription plan, with new machines. When a customer orders a customized PC, Dell offers a 30-day free trial to Office 365 Home Premium by default.
Microsoft offers the same 30-day trial on its website. The trial requires the customer to provide a credit card, which is charged if the plan isn't canceled within the trial period.
Dell customers can also add a one-year subscription to Office 365 to the PC's price, or one of the perpetual license versions of Office 2013.
Both Hewlett-Packard and Lenovo, the No. 1 and No. 2 PC OEMs last quarter by IDC's estimate, instead offer a factory-installed 30-day trial to Office 2013 (HP) or will add a paid copy of Office 2013 to the PC's hard drive (Lenovo).
The route taken by those OEMs was traditional, in that computer makers have long included Office on new PCs, either automatically as a trial or by customer request as a paid option, then collected a percentage of sales from Microsoft.
In fact, when Office 2010 launched three years ago, Microsoft supported the promotional tactic with a new way to acquire the suite. Called "product key codes" (PKC), they were 25-character activation keys sold at retail. At prices between $120 and $350, a PKC transformed a trial into a working version of Office 2010. PKCs were sold without DVD installation media and also acted as replacements for the dropped "upgrade" editions.
PKCs are also available for Office 2013 for between $120 and $360.
But Dell took a different tack, instead going with Office 365.
Not surprisingly, Microsoft has also taken that approach with its own tablet, the Surface Pro: Buyers who opt to purchase a one-year subscription to Office 365 Home Premium at the same time they order a Surface Pro receive a $20 discount.
"I anticipate this is their move forward," said Miller, of Microsoft's pushing Office 365 with a discount at hardware purchase time.
Microsoft has, of course, taken other steps to promote Office 365, especially Home Premium, which is aimed at consumers, a market Microsoft wants to shift toward a "rent-not-own" software model.