Paying Twice Is Not So NIce

by Amy H. Blankstein

This Fall Microsoft shuffled into the spotlight again, prodded by accusations that businesses were being forced to pay more than once for some of its products. In July, Microsoft began demanding upgrade fees from companies who use a process called re-imaging to install software in larger numbers of PCs. It backed off after large- and medium-sized companies complained, but smaller businesses still must pay up.

Re-imaging is a process in which a company customizes one computer’s system to its specifications, then makes a snapshot of that configuration. That image can then be copied onto other PCs, either for a faster rollout when new ones are purchased or to speed repairs when a computer breaks down.

Microsoft’s problem was with companies that re-imaged on computers that have Microsoft software pre-installed through a PC manufacturer. According to Microsoft, the licenses for that software do not include the right to re-image, and customers who do so must pay an additional fee for each license. “We think that’s wrong,” says Neil MacDonald, research director for Windows Strategies at the Gartner research group. “You’ve already paid for those desktop licenses.”

A secondary problem emerges for companies that comply with the policy. Once it has paid the upgrade fee, the company receives a copy of the operating system or program that it is allowed to use to re-image. Then the company usually wipes the existing media from the PC manufacturer off its computers and installs the Microsoft-approved media. What the company may not realize is that by making these installations it is violating its warranty with the PC manufacturer. At that point, the only place it can get support is through Microsoft, which charges anywhere from $250 to $500 per incident.

Large- and medium-sized companies that held volume purchase agreements through the software giant’s Enterprise and Select programs protested immediately, eliciting a September policy turnaround. But companies that hold less than 500 licenses under Microsoft’s Open Agreement are still responsible for the upgrade fee.

MacDonald charges that Microsoft’s decision to exclude Open Agreements was motivated by greed. “About 100 million PC desktops worldwide are affected by this policy, up to 60 million of which have been deployed incorrectly,” he says. “Microsoft still has an $11 billion opportunity.”

Microsoft denies the charge. “We’re looking at the issues associated with extending that change to our other volume-licensing customers,” says Simon Hughes, program manager of Microsoft’s Volume Licensing Division. “We’re also looking at the potential demand for it. We haven’t received feedback that re-imaging is required by our small business customers yet.” But according to companies that produce re-imaging tools, the demand already exists: Companies with 25 to 100 desktops are buying re-imaging products, especially for disaster recovery.