Original URL: http://www.theregister.co.uk/1999/10/14/ms_to_switch_to_rental/

MS to switch to rental model with Win2k?

If you sift through Ballmer's remarks about 'service', it looks like it could happen

By Graham Lea

Posted in Business, 14th October 1999 15:49 GMT

Microsoft's long-standing plan to switch over to an annual rental model for software sales could roll early next year, with Windows 2000 as the engine that drives it. As internal documentation that has made it into the public domain thanks to the trial has shown, the company has been trying to make the move for years, but from what Steve Ballmer was saying yesterday, this time it could really happen. Microsoft's president was speaking at a Gartner Group conference in Florida, and the main point he was making was that Microsoft intended to turn itself into "what I call a software service company". But it's the sub-text that's interesting -- what did he mean by that? Well in one sense, it's services, Jim, but not as we know it: "The software is going to have to transform itself from a CD to a service that continually takes care of itself and updates itself." Once you've written this software (if you can) it's not a bad life at all. Whereas what you'd call a software services company today would have a high technical support headcount, the model Ballmer envisages for Microsoft tomorrow has a very high level of automation. The software itself checks regularly for the availability of patches and updates, and knows where to go if something goes wrong. We've seen the signposts to this already with the introduction of the Windows Update Web service and the promises of self-healing software from Microsoft. Of course we're perfectly free to question the company's ability ever to get this kind of system working properly, but the context Ballmer places it in is important. Microsoft won't be selling software packages as such for much longer, and intends to derive revenue from automated, Web-based "service". He adds that he's as yet unsure whether customers will pay for this on the basis of usage or monthly fees, but whichever, you can see the switch to rental quite clearly. When does this happen? Ballmer says that Microsoft will be introducing a new pricing model for Windows, its Office suite and BackOffice, but doesn't give a time-scale. The company does, however, (as Ballmer himself has been saying) intend to get into the Application Service Provision market, and referring to the Microsoft's plans yesterday Ballmer said that as far as business customers were concerned: "We'll do the file sharing, we'll do the email, we'll update the software. We have to step up to the level of partnership." That does sound rather like an ASP offering, and as Ballmer was specifically talking about business, it seems plausible to think of an initial rollout to major business customers shortly after the Win2k rollout, or even as part of it. Win2k pricing has not yet been announced, and if Microsoft thinks it can make the new pricing model stick, this might be seen by the company as the time to go with it. It also has the need to get something plausible in the ASP market going in order to compete with Sun, which really means it needs the new services and new pricing models next year. Funnily enough, writing to Bill Gates in December 1997 Microsoft OEM chief Joachim Kempin recommended a switch to a rental ("annuity") model and suggested the switch should be made on the introduction of a new rev of the OS. He had 2001 pencilled in, but the rise of Web-based services wasn't something he was expecting at the time. As Ballmer was talking about business, that leaves a question mark over the fate of the rest of us. But not much of one. Microsoft clearly is trying to establish a situation where registration of software is compulsory, and where its systems are sufficiently capable to be able to handle upgrades and fixes automatically. It would also, as the good Joachim tells us, like to charge everybody a regular fee for the privilege. But it's going to be a difficult one to sell to the world in general, as opposed to a smaller number of business customers who might be induced to believe they're getting some kind of deal. So maybe MS wion't go the whole way with Win2k, but watch out for Neptune. ® Related 'Ballmer at Gartner' story MS stops customers from revealing MS software performance