As many of you will already know, Microsoft announced several months ago that it was likely to make significant changes to the licensing terms available to housing associations and RSLs for its software. Just before going to press with this issue, Housing Technology interviewed a number of leading housing providers and a housing consultancy on the impact of the licensing changes officially announced on 1 July.
Microsoft’s new licensing terms now make it much more difficult for housing providers to access the massive discounts available through its Academic licensing terms. Most housing providers are now likely to qualify for Microsoft’s less-discounted PSA12 pricing framework.
- Charitable organisations will be eligible for Microsoft’s Academic discounts as long as they receive more than 10 per cent of their revenues from donations.
- If they receive less than 10 per cent of their funding from voluntary donations, and they receive the majority of their funding from public sector contracting, then these organisations will be eligible for Microsoft’s PSA12 pricing framework for the public sector.
- Smaller registered charities needing software to run on up to 50 computers can access a wide variety of free Microsoft software from Charity Technology Exchange (www.ctxchange.org) which charges a small administrative handling fee.
- Commercial organisations, including charities and social enterprises that do not meet the above criteria, can buy Microsoft software from the commercial volume licensing pricelist.
To compound the situation, Microsoft also announced that its overall UK pricing would increase by up to 27 per cent from 1 July 2012, with the company’s stated aim of harmonising sterling prices with its Euro-denominated price list.
However regarding the level of donations needed to qualify for charitable status and therefore Academic licensing, we think it is important to note that Microsoft’s statement (see box) emphasises, “To be clear we are not asking for ‘public donations’ to be greater than 10 per cent, we just say donations”. Housing Technology therefore thinks that there is probably greater scope than generally thought for housing providers to qualify for Academic licensing, but we may be wrong (and we hope not).
Impact of licensing changes
Microsoft’s licensing changes are likely to result in a combination of less frequent product upgrades by housing providers alongside closer scrutiny of alternative products and delivery models, such as cloud computing.
Peter Davis, head of IT services at Sentinel Housing Association, told Housing Technology, “Our pattern of procurement will change both in terms of frequency of upgrades and products considered. We will also look much more carefully at Microsoft alternatives.”
Martin Carpenter, director of IT at Peabody, echoed this view, saying, “In the short term, we have no option but to purchase what we need to fulfil our expected requirements from the Microsoft stack. In the longer term, the licensing changes will force us to think very carefully about when we upgrade and what alternatives there are.”
Taking a similar viewpoint, John Paul, interim head of IT at Viridian Housing, said, “Change will be slow as Microsoft software is embedded throughout our information infrastructure, but I think it will come. The upgrade cycle may prove to be a trigger as most housing providers will have bought all they need before the increase. Switching to Office 2010 brings some benefits but if the next upgrade has a big price tag, it will need big benefits too and if it’s a cloud solution, Microsoft will no longer be a ‘shoo-in’ – others will be considered.”
Every housing provider will have its own specific licensing requirements but the sterling/Euro price increases across the board combined with the more stringent Academic licensing terms mean that almost everyone will have to somehow find larger budgets, implement alternative products or services, or even cut existing services to tenants.
Chris Battye, head of business systems at Affinity Sutton, said, “The change from Academic pricing to the new PSA12 framework will result in an approximate four-fold rise in the cost of Microsoft licences and associated Software Assurance. Unfortunately every additional pound spent on Microsoft software is a pound that can no longer be spent on providing essential front-line services.”
Housing Technology’s senior source at one of the UK’s largest housing groups said, “We will be extending how long we use software for, so we may skip whole releases of Office and other Microsoft products. However, we will still be hit with seven-figure increases in licence costs over the next five to 10 years – they would have been eight-figure increases if we had not planned changes to our current licence purchase plans.”
Jacqui Stoggall, director of consultancy at Sovereign Business Integration Group, added, “Our housing clients budgeted for Microsoft Office upgrades and technical infrastructure refresh projects during the last quarter of 2011. Some clients found themselves either forced to purchase well in advance of when needed [before the withdrawal of Academic pricing] or face unbudgeted expenditure increases of over £50,000, with one client facing a 450 per cent increase in its budgeted licensing costs.”
Sentinel Housing’s Davis also reported significant cost increases, saying, “It is more difficult to assess the cost impact for new and replacement systems as we will no doubt look at alternatives, but we do know that the cost of adding a new post will now be three times more expensive than before.”
One probably unintended consequence of the original introduction of Academic licensing for housing providers is that the low costs made it very easy for housing providers to shift more and more of their IT infrastructure to the Microsoft platform without needing the consider alternatives or indeed what would happen if or when Microsoft changed its licensing terms.
At the same time, the very low margins (after the Academic licensing discount had been taken into account) available to application vendors and systems integrators for providing Microsoft licences to their housing customers meant that most housing providers bought their licences direct and therefore now have no buffer against these changes.
Viridian Housing’s Paul said, “For many years, the favourable Microsoft licensing has meant that we did not even consider alternatives or always question as hard as we could requests for extra product licensing. These changes mean that we will look more closely at non-Microsoft solutions.”
Affinity Sutton’s Battye added, “Affinity Sutton completed a roll out of Office 2010 earlier this year. It will be another three or four years before a refresh to a later version is considered, by which time the cloud-based SaaS market will have matured, be more credible and less expensive, and alternatives to Microsoft Office will exist.”
Our anonymous source at a large housing group suggested that some housing providers ought to consider open-source products such as Open Office, more selective adoption of Microsoft Office such as only Word and Excel rather than the entire Office Professional suite, as well as considering non-Microsoft systems for areas such as CRM and intranets.
From our interviewees’ responses and many of the posts on the subject on housing IT-related online forums, the general mood among IT professionals in this sector is a mixture of short-term resignation to the changes and a long-term plan to pay much closer attention to the details of their Microsoft ‘estates’, such as the implementation of cut-down version of Office as mentioned above, and a greater consideration of non-Microsoft solutions.
To conclude, most housing providers will have to deal with cost increases for their Microsoft licences. Housing Technology believes that, given the scale of the increases affecting many organisations, considerable time and resources should be devoted to discussing with Microsoft, your IT resellers and your own finance teams about which revenue and funding streams could possibly be classed as ‘donations’ under the Microsoft’s terms and conditions – one pinprick of hope is that Microsoft’s statement suggests that there might be more ‘wiggle room’ than previously thought.
Statement from Microsoft
When contacted by Housing Technology about the changes to its licensing terms for social housing providers and their charitable status (or otherwise), a Microsoft spokesperson told us, “Microsoft has for many years supported charities in the UK through a range of software donations, grants, discounts and volunteering. During that time the landscape of provision of service by charities has markedly changed. Many now provide public services in the place of public sector organisations. Such public services are supported at different levels of discount of our products; for context these are still substantive discounts. Microsoft was keen that those that provide services in this way should not be disadvantaged by having to pay commercial prices levels. So we were able to negotiate with the Cabinet Office equivalent levels of discount to those enjoyed by public sector organisations.
“We feel this is good news for many public sector and third sector organisations and opens up a broader range of discounts to a greater number of organisations, better suited to their needs. This new pricing framework also offers new annuity, support and training contracts that have up until now not been available to the third sector. We feel the professional and operational challenges now experienced by charities, social enterprises and public sector organisations demand a better framework of support from Microsoft.
“This new market in the provision of public service puts charities in competition with local government organisations and social enterprises. We are keen to make sure that no one group has an advantage over another, but that said, Microsoft wanted to continue to recognise the special role of charities, and to that end we set the level of donations as low as we could to differentiate them from the others. Charities will still be entitled to apply for software grants, and will still be able to apply for software through CTX, which charges a nominal handling fee in return for providing donated software from Microsoft, and others. To be clear we are not asking for ‘public donations’ to be greater than 10%, we just say donations. We do feel we should place our highest level of support where the donations are not only at their highest but as low as 10%.”
Please note that the above statement is verbatim from Microsoft.