Original URL: http://www.theregister.co.uk/1998/11/20/microsofts_plan_to_levy_annual/

Microsoft's plan to levy annual rental fee for Windows

Top OEM VP lays out plan to secure old age with 'annuity' scheme

By John Lettice

Posted in Business, 20th November 1998 09:43 GMT

Microsoft has considered charging an annual fee for Windows use, according to a memo to Bill Gates produced in court yesterday. The document, from December last year, came from senior VP sales Joachim Kempin, and was headed: "Licence for limited time and create annuity business." Kempin suggested the scheme could start in 2001, apparently because in order to do this in the consumer market, the move would have to be made from the launch of a new rev of the operating system. He points out to Gates that he's made the suggestion before, and that it now needed serious consideration. Awkwardly for Microsoft, which was yesterday denying accusations of putting its prices up over the last two years, the memo shows that Kempin was a year ago anticipating PCs down at the $500 level by Christmas 1998, and saying "our royalties could be as high as 10 per cent of total system price…" Nevertheless Microsoft should resist royalty price decreases firmly, he said - i.e., Microsoft's pricing should not fall in line with PC pricing, and Microsoft's percentage share of a growing market should therefore rise. Oops… And oops some more: "We have increased our prices over the last ten years… other component prices have come down and continue to come down." Nevertheless Microsoft's goal was to get the "highest amount of dollars" it could from its OEM customers. Triple oops… As for the 'annuity' scheme, Microsoft spokesman Mark Murray said afterwards that it was just an idea, no way was it a firm plan. But has Kempin by his own admission has raised it with Gates before, and there's a growing audit trail that indicates that Microsoft is at least putting itself in the position where it could switch over to a rental model. In the business market it has abolished concurrent licensing, and switched to charging for the total number of users rather than just those connected and/or using the software at the time. This apparently even applies to semi-mobile users who can no longer operate on a single licence for both a desktop and a mobile computer. Having cleared the ground in this way, Microsoft is setting up contracts that give discounts for bulk purchase and that encourage corporate customers to sign up for upgrade programmes. You commit to regular upgrades over, say, a three year period and you get more discounts, but you can then find yourself paying for regular upgrades for everybody in the organisation, rather than just upgrading some of your people. Effectively, it's starting to look more like a rental model. How do you do this in the consumer market? In order to make this work, Microsoft would have to implement a rigorous registration process. As Kempin says: "This is the best thing long term but it might disrupt end user operations and could require end user registration." People who've been looking at recent Microsoft betas may have noticed that (no doubt coincidentally) Microsoft software registration has been getting a lot less optional. From the tone of Kempin's memo, it seems pretty clear that, pace Mark Murray, this is an idea that Microsoft wants to implement, but that the company thinks there are still a lot of hurdles to overcome before it can do it. He raises the possibility of Compaq rounding up a group of PC companies in order to fund "a competing effort (say in India)," but reckons this would be difficult to get off the ground, and could be resisted. He wasn't significantly worried about Sun and Netscape getting together, because of the "compatibility barrier," but intriguingly, considering what's happened in the intervening year, seems to think Intel could make a go of it. ® If Intel get into operating systems, "it will get ugly." Well folks, Intel is getting into operating systems, isn't it? Complete Register trial coverage