At my (paying) job, we largely sell Microsoft products. Windows 7, office – that kind of thing. We also sell and support other proprietary software.

We have very few enterprise level clients, most of our clients are smaller businesses or home users. Once in a while we do get a request of more expensive Microsoft products like – as was the case today – Microsoft Server 2008, or sometimes MS Exchange, MS CRM and so on. Accounting software or other niche software packages often make out part of the deal.

I think the Microsoft Licensing model, and other proprietary licenses, is a rip off, and here is why…

A Fine Line of Needs.

If you are a smaller business that experiences positive growth you will eventually outgrow your IT infrastructure. When you were five people in a small office your four port Billion Wifi routed did not cut it anymore, and you added a switch.

Eventually you will begin to think about file storage, and because you are a small group you take your oldest PC, usually running Windows XP Professional, and use that as a file server, with shared printers scattered around the office.

Eventually, you grow some more. Suddenly your XP File/Accounting server does not work for you because XP has a ten concurrent inbound connection limit. Since the old clunker does not drop closed connections you run into problems when some of your users cannot access files on the server, or connect to Accounting Databases – all because your incoming connections exceed the allowed limit.

Since Windows 7 is available you decide to maybe buy a newer PC, the old server was an ancient piece of hardware in any case, and have Windows 7 installed on it.

You phone around, and realize that since you have reached your user limit for the “workgroup” license for your accounting software, you will need to upgrade to the “Client-Server” license.

This will only run on Microsoft Windows Server edition.

License Limitations

You are now faced with the reality that you have no choice in the matter anymore. No matter what the software developers try and spin you, you are now bound to buy expensive software licenses in order to continue your business. The licenses are very expensive though.

Let me paint you a picture.

You have grown to eleven users in your company. That includes the receptionist that does not use your accounting software, but she scans documents for the others in the office – multi tasking is the norm in small business – and saves them to the file server.

You realize that you need to bite the bullet and get a quote for the new accounting software, as well as Windows Server 2008.

This is what you are presented with: (This is from an actual quote we received for a customer today. Some notes on the items at the end of the article…)

  • Accounting Package – Client Server Edition – R 6 500.00
    This package supports Five Users, and unlimited companies.
  • Extra Users License – R1 600.00 per user.
    That is a total of R 8 000.00 for the five extra users.
  • Windows Server 2008 – R 8 200.00
  • Windows Server 2008 Client Access Licenses – R1 260.00 per five users.
    Since you have 11 users that will need to connect to the Server you will need to buy Fifteen CALs at a total of R 3 780.00

Suddenly this is becoming an expensive exercise.

BUT WAIT! THERE’S MORE!!

Since you will need to have your data migrated from your older version of your accounting package (You bought it two or three years ago) you will need someone to do this for you. Problem is, the only people who know how to do this are “$accountingsoftware Qualified Installers.”

They do not come cheap.

Then you get paid-for telephonic support. You guessed it – you buy the software, but you do not get free support. Not even telephonic support is free. Sure your license might come with 30days of free support, or as in this case X-minutes of telephonic support.

It all adds up.

Once you are done buying the software and client access licenses, and the “media kits,” – yes in the case of Microsoft server and other software like Adobe Creative Suite you have to pay for the media (the DVD’s) that you get your software on – you have spent a pretty penny.

Another thing that you, the small business owner, might get faced with is the expiry of support licenses. In the case of the accounting software we support most often (those who follow @quintinza on Twitter might know the name, but I remain mum in this article) your support contract will end.

In the case of many clients there is software breakage, and this leads to database corruption of your accounting data. So if this happens you can send your data in to the vendor and they will do a data recovery for you. Problem is you will need to purchase a years support contract before they touch your data.

Sometimes you will get software updates coming down the line for your package. Say (and this really happened to one client) you have your five users of $accountingsoftware that you installed with the media it you paid for. Then, during the included support period, or one year support you bought, you downloaded a “build” of your software. Basically, in laytech terms, this is a service pack for your accounting software.

Now 18months down the line you get a new accountant lady, and you install the package for her to use. The package you bought allows the extra user, so you do not need to buy an extra user license for her. You are legit. When you open your company with her accounting software it proclaims that her version is older than what you are using and that she cannot open the company.

In this case I contacted the software vendor. Why could they not download the update that they had downloaded for the other computers during the previous year? They needed to buy an extra years support. For one extra user, with a valid user license, they could not work because an update had come down the line that was only available to people with a paid up support contract.

The license agreement and the quote from the vendor clearly stated that the support contract was “optional” and/or a “value added feature.”

Vendor Lock-In

It is easy to bash Microsoft for this, but the bigger culprits are the proprietary software vendors who provide niche products like accounting software. Even though the support contract was listed as optional our client was staring forced buy-in in the face. They were careful users, had very little problems with their network and generally applied good practice to their IT philosophy.

Because they did all these they had no need for an expensive support contract. Most of the time the problems they had with the software were minor – printers not printing, users locked in because they did not log out before shutting down their PC’s or due to a power failure, that kind of thing.

The only time they ever needed anything from the vendor was when they had to add a user, with a license that they had paid for as part of the package, no less, to their accounting pool.

Now they had to buy a years worth of support that they were almost guaranteed not to use to download a 9megabyte update to patch her accounting package to work on their data.

And it wasn’t like they had bought the accounting package and would never do business with the vendor either. Auditors and accountants who work on company books for tax and other purposes need to stay up to date with the software – often the newer releases include tax table updates, legal applications that I will never get to understand and other practical changes.

The problem is that when your accountant updates his software your companies will no longer be compatible with the software he uses and you will need to buy the newer version of the software. This happens every year.

Proprietary licensing, the way it is approached today, is a financial toilet. Small business, and large corporates, have to shovel money down the always open mouth of the software vendors in order to do business.

Often the software licenses end up being many times an extra staff member’s salary. For a years support, plus the Windows server licenses and Client Access Licenses and then the accounting/other niche licenses and then their support licenses you can end up paying hundreds of thousands of rands, depending on the size of your user base.

Summary

I agree that charging for software is a vendors free choice. I have nothing against paying for Windows 7 if I wanted to use it – it is a free market, after all.

My problem is the exorbitant prices, as well as the licensing schemes that force users to KEEP paying for the use of the software. At least with Windows, and most Microsoft products, you do not have recurring license fees for the same product. If your business makes use of a niche product, like accounting software, or – as is the case with my one client – hearing aid calibration software, you can expect to pay continuously.

I believe strongly that a lot of the extra costs that are levied against software users are artificial. In the examples given above there is no need to require a years support contract in order to let a legitimate user with a paid for license use the software that the client have already paid for in full.

Oftentimes the whole ecosystem seems to conspire against the client. Since Windows XP Licenses are no longer available I have many clients who are stuck needing to buy expensive Windows 7 compatible versions of their software because the one or two new laptops/computers they have to buy for new employees/hardware upgrades have Windows 7.

The new Windows 7 compatible software (hearing aid calibration software/metallurgy software/younameit) is predictably not compatible with the older software, so everyone needs to have their software updated. Often, and this happened at least once, the new version of the software will not work on XP, so now the client has to upgrade not only the two PC’s as planned, but ALL their computers. And this simply to do business.

In one case my client had to buy new hardware because the newer software did not work on the model of device they used  – another extra expense.

And then not to mention hiring a consultant from the vendor to migrate their data from the older version of the software to the newer version, or training required to teach their personnel how to use the new software.

It is a money making circle, the vendors are abusing their “rights.”

Notes

  • This post was compiled from several real world scenarios. I have seen this happen to quite a few clients over the years, in many diverse fields of business. From a hearing aid specialist to engineers to a bunch of guys who work with minerals and mining to two employment agencies, among others.
  • I am STILL not certain why Windows Server 2008 requires Client Access Licenses if there is no  Exchange or Domain functionality running on the server. It will be a file server, nothing more. I inquired about this from our local Microsoft Wholesaler and they insisted that you could not buy Windows Server without at least five Client Access Licenses, and you needed to buy the media kit.
  • I will not spill the beans on the Accounting software that I used in my example – they are one of a few of this kind of software we get to deal with, but I believe their licensing scheme is the worst of them all, and again this was based on real-world scenarios. These things happened.
  • The licensing terms that I referenced here is as it was explained to me by the vendors involved. If anyone comes forward with a correction I will note it, but it will not change the fact that this was how agents from the software vendors involved explained the terms to me. In the case of the single user needing a patch to interface with the company software I raised enough of a stink (it included using the F-word at least once while on the phone with the vendor explaining what I though of their business model [not my proudest moment...]) that they provided me with a CD with the patch on it – provided we collected it from their offices. That was a 120km round-trip for one of my technicians.

Call to Action

Look, proprietary software is a reality. I will say again that I have no problem with a software vendor charging for their product – it is their right. What I hope anyone who reads this does, is read the fine print. Shop around, and negotiate aggressively.

Do not be afraid to walk away from a vendor if they stick to licensing terms that are unfavorable to you. You are their client, and you should make them work for your business.

I have negotiated free support from vendors after the fact for clients of mine. Large as software vendors are they can be reasonable given a concise and complete error report from a knowledgeable technician. Often you just wear them down.

Look for alternatives. There are probably many software vendors out there that makes software for your field. Get the best you can for your money. Oftentimes there are free and open source alternatives that can fulfill your needs, for niche software applications this is often not the case though – writing a specialist piece of software is usually very expensive.

Remember – shop around, and make sure you understand the licensing terms and disadvantages before you buy. Just because something is the “industry standard” does not mean you should use it. There is probably something better a few phone calls away.

No related posts.