In a bid to standardize and simplify pricing for its enterprise applications, Microsoft Corp. today rolled out new license and maintenance terms that will push new customers of its Dynamics business software toward user-based pricing.
The new user-based pricing program will mean lower overall licensing costs for many customers such as companies with 15 or fewer users, said Gayle Hoshino, general manager for licensing at Microsoft's Business Solutions (MBS) group. Larger customers with more than 50 users "may see higher prices" as a result of the new licensing program, Hoshino told Managing Automation.
The new pricing structure -- called the Business Ready Licensing Model -- will not necessarily impact existing Microsoft enterprise application customers who still have the option of continuing with the current licensing program which, for the most part, involves paying for the applications on a per-module basis.
A second new licensing model -- governing maintenance fees -- will affect a wider range of existing and new Microsoft enterprise application customers. Under that program -- called the Business Ready Enhancement Plan -- annual maintenance pricing will be standardized at 16% of the original license charge. Currently, customers of Microsoft's different Dynamics enterprise applications -- AX (formerly Axapta), GP (Great Plains), NAV (Navision), and SL (Solomon) -- pay different annual maintenance fees ranging from 10% to 20% of the original license fee.
Customers of Microsoft's NAV product currently pay maintenance fees at the low end of that range, said Jana Reinke, Microsoft group manager for global services. Customers of AX, Microsoft's manufacturing-oriented enterprise application product -- already pay in the 16% range for annual maintenance.
The pricing changes are part of a long-term effort by Microsoft to consolidate its four enterprise application product lines onto a single code base. Last year the company rebranded its enterprise application products using the Dynamics moniker. Between now and 2007, all of Microsoft's business applications, including Microsoft CRM, will undergo a coordinated wave of major enhancements before consolidation to a common code base begins after 2008, Microsoft officials have said.
"We're converging solutions on the technology side and with the unified brand, and now, with the new licensing, we're taking the next logical step," Hoshino said. "We're bringing together licensing and enhancement plans so they are consistent around the world and across product lines."
The new pricing structure may give Microsoft an advantage over competitors SAP and Oracle, particularly at the low end of the market, noted Judy Sweeney, senior vice president of research at AMR Research (Boston). "Any time you can simplify pricing for the mid-market you are going to have an advantage," Sweeney noted. "Users in those companies often play multiple roles, so licensing by user for those companies is an advantage."
Also, Sweeney pointed out, Microsoft continues to offer concurrent user pricing at a time when many vendors are pushing for pricing on a named-user basis. "That's also very attractive to small and mid-market companies," she explained.
The new Business Ready Licensing Model will be structured as a three-tiered program with different user-based pricing levels associated with specific levels of functionality. All of the Microsoft enterprise applications will be available in an entry-level version called Business Essentials, a mid-tier level called Advanced Management Edition, and a high-end version called Advanced Management Enterprise.
- Business Essentials packages will include financial management modules such as general ledger, accounts receivable and payable, and fixed assets, as well as basic supply chain management functionality. Business Essentials versions will also have limited business intelligence functionality. Pricing will start at $2,250 per user.
- The Advanced Management Edition versions will include Business Essentials modules plus project management, manufacturing functionality such as master production scheduling, and advanced analytics. Pricing will begin at $3,980 per user.
- The Advanced Management Enterprise versions will include all of the functionality in the Advanced Management Edition as well as industry-specific modules provided on an a la carte basis by Microsoft and its reseller business partners. Modules such as manufacturing shop floor management for AX are included, Hoshino said.
In addition, Microsoft said it will charge new customers a 15% premium for all levels of the Dynamics AX suite. Microsoft recently
began shipping Version 4.0 of AX, a major new release that includes role-based user interfaces, advanced analytics, and other features.
"The AX product is at the higher end right now, and the pricing reflects that," Hoshino explained.
The new pricing schemes effectively kick in August 1. Microsoft said it will continue to offer new customers the option of selecting current module-based pricing for 90 days after that.
The biggest impact of the new user-based licensing, Hoshino predicted, will be on smaller customers, many of whom had seen module-based pricing as a barrier to buying enterprise applications for just a handful of users. "If we price on a per-user basis, companies with fewer than 15 users can get in much more affordably," Hoshino said.
Microsoft resellers today said the simpler pricing may have the effect of expanding Microsoft's presence, particularly among mid-size and small customers. "This should help shorten the sales cycle," said Mike Merfeld, solutions director at Avanade (Chicago), a reseller of MBS software. "Customers will be able to more easily understand the structure, and that will be a big benefit. Microsoft is targeting growth with this change, as they should."
Besides introducing a flat 16% maintenance price, the new Business Ready Enhancement Plan also adds free support features for customers covered under the Microsoft maintenance program. Customers will receive free Web-based training courseware and manuals. The courseware will include content specific to software functionality provided for specific countries, Reinke pointed out.
Microsoft today also announced "transition investment credit," under which the company will credit customers wishing to switch to a different Dynamics product for 100% of the license value of their current product.
Many customers today were still analyzing the possible impact of the pricing changes. "This is the first we've heard about it, so we'll be very interested in crunching the numbers and understanding what it means," said Cindy Highbarger, IT manager at Mid-Continent Instruments (Wichita, KA), a maker of avionics instruments which uses Microsoft's Dynamics GP products.