Saturday, March 01, 2008

Open Value Subscription in One Lesson

OVS - Open Value Subscription - is now "real" in the U.S. (Some form has existed in Europe for awhile.) We've sold our first deal, although we can't officially order the licenses until Monday.

So, pull up a barstool, grab some peanuts, and let me give you the OVS philosophy we're using. Feel free to throw your nutshells on the floor.

1. The Very Small Business Problem in a Nutshell

For our example, let's look at a business with ten desktop PCs and one Small Business Server. They can get into licensing because the SBS box has six points minimum (one for the server and five for the CALs).

But office is another story.

Riddle me this: A small business with ten computers and ten copies of Office has purchased how many copies of Office?

Answer: Probably at least fifteen copies. Over the course of ten years, twenty copies wouldn't be unreasonable. Why?

Very small businesses buy one, or two, or three computers at a time. They buy Office OEM, Office full box product, and the occasional upgrade. They replace each computer every three or four years, but each of these Office versions cannot be moved from one computer to another.

So they keep buying Office again and again. Even with OEM versions, the total amount spent on Office for each user far exceeds what they'd spend with license versions.

So, in a nutshell, small businesses need a way to get into a licensing program.

2. The Small Biz Licensing Paradox in a Nutshell

Wouldn't it be great if we could get the whole office on Office Licenses? Yes.

But (see item #1) the office has already bought Office. If we sell them Office again, we just rub salt into the wound.

MS Office is perhaps the most over-priced product in the history of the universe. And, as we've seen, licenses have been structured so that each user ends up over-buying it several times.

So, no moral human being could ask a very small business to pay full price (even the license price) for a product they've already bought more than once per desktop.

And so the paradox is: How do you get these desktops on a licensing program, which is in their long-term interest?

3. Open Value Subscription in a Nutshell

Now comes Microsoft's OVS program. It looks like this:

- Client must buy licenses for all PCs (company-wide licenses). Minimum is still five.

- Client will make three annual payments for the licenses. The SKUs are labeled "One year of . . .." Of course, each year is about 1/3 the full price.

- For the first year only, client will receive a 50% discount for all existing valid licenses -- whether OEM, full box product, or upgrade. These are called "up to date" or UTD SKUs.

- After the client is on OVS, they must remain "company-wide" with licenses. So, if they buy a new PC, they install a new copy of Office. If they drop a machine, they obviously uninstall a copy of Office. There is a SKU for a month of the subscription, so you can make these machines legal.

- On the anniversary date, clients "true up" or "true down" their licenses. That is, if they've added machines, their annual payment goes up. If they've dropped machines, the annual payment goes down.

4. Selling OVS, in a Nutshell

How many times have you heard a client voice frustration because they can't move Office to the new machine and that they've already bought the product over and over again?

When a computer dies, you install the License on the new machine. When a machine is upgraded/replaced, you install the License on the new machine. When a machine is stolen, you install the License on the new machine.

When a new version comes out, you get it. No questions asked.

You make even, stable payments. No more spikes.

The license program grows and shrinks with your business. You buy what you need as you "true up" each year.

You get a 50% discount for the existing licenses -- even if they're OEM.

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We already move clients to licensing when we can. OVS will make that move a lot easier.

In a nutshell: we love it.

8 comments:

  1. Karl,

    I'm still having serious trouble selling office licensing to small business.

    Say a computer is good for three years. We both know that small business stretches it to four or five, but let's stick with three.

    Office SB OEM = $279 (and that currently includes Acrobat Standard!)

    OVS = $153 x 3 = $459

    So over 9 years:
    3 x 279 = $837
    9 x 153 = $1,377
    Difference $540

    Who cares if it's transferrable to another computer or not when it can be purchased for so much less money than the volume license?

    It would ONLY make sense if the business always needed to upgrade to the latest version of Office. Is the latest version of Office compelling enough to pay $30,000 over a 9 year period for a 60 seat company? Perhaps.

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  2. Stacey C1:36 PM

    MS has a graph discussing the break even point of OVS being in year 12 (If memory serves), it is tough to sell that to small businesses. Most don't even acknowledge that they will want or need new PC's in 3 years anyway.

    But there is a big flaw in your logic...unless I am just missing the obvious, in your example, you state, correctly, that with a server and 10 PC's, you can qualify for OL...so why not just get the Office under OL? Cost of Open Business license (SB Edition) is, what, $399? This seperates the assets correctly as you mentioned. Now for a real cost comparison, and to compare apples to apples, calculate Office 2k7 SB edition with SA coverage for 3 additionals years, then compare that to the 9 year cost of OVS. Robert assumes that, after 9 years, the client would still be using the same version of Office, which I highly doubt it...3 years, maybe, but after 4 or 4, they are more likely to want, or be forced to upgrade.

    I have really been trying to see the selling angle on OVS, but can't...maybe you can help me see the light.

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  3. Arrgghhhh!

    You're both 100% correct.

    Robert: I've had this exact same argument with Eric Ligman.

    But it gets more convoluted.

    In that nine years, the business owner probably didn't just adopt the new verison of Office when they bought new machines. That means they bought the upgrade version for at least half of their computers.

    Anyway, the numbers still don't work out for everyone.

    But remember that there are other benefits. With OVS, you're buying more than the basic software. Yes, you get the upgrades. But you also get home use. So add the value of a couple more licenses there.

    At the small business end of the spectrum, the cost of hassles, frustration, and labor are negigible. So one can always make the argument that it is never worthwhile to save hassles, frustration, and labor buy buying into OVS.

    Now consider the value of regular payments, and avoiding the spikes of buying three or four licenses at a time. Annual payments are a huge benefit for many clients.

    -----

    As for Stacey's argument about open license . . . Ugh! The story gets even longer.

    Here's the deal: We sell open license when we can. We only sell software assurance (SA) when it is a definite benefit to the client.

    Here are some examples:

    March 2004: Sell SBS on a license. No SA because the client will never get benefit out of it.

    March 2005: We can add one or two or three Office licenses to the original SBS license agreement.

    March 2006: original SBS license agreement expires. Can no longer buy individual licenses and add them to the original agreement.

    March 2007: Not sure, if we were to sell SBS, that we should sell SA.

    November 2007: If we were to sell SBS, we would definitely sell with SA. Makes SBS more expensive. Now we can buy Office licenses one-off and attach them to the SBS agreement.

    The bottom line: We attach Office licenses to agreements when we can. But mostly, we can't because it doesn't make sense to sell an operating system with SA and renew it for an additional two years. You'd spend more than if you bought the whole O.S. twice!

    The whole MS licensing mess is not as difficult as people like to think. It's convoluted and improperly priced, but it's not difficult.

    I just believe that OVS is a step in the right direction for small businesses.

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  4. StaceyC7:13 AM

    Glad to see I am not the other one looking at it and going...OK, I understand what you're saying, but, "Huh???" The best thing MS could do is to allow simple upgrade path from an existing OEM install to an Open License. If Company A has 10 computers they bought last year, with Office 2007, all OEM, give me a set price that is (Open$-OEM$)x10 (though a slight discount might spurn some immediate transfers). I went around and around with Dell for client who already had an account, so we just configured and ordered for them, but Dell can't sell a box without an OS, so they were wanting to Vista Home with and OL Vista Business UPG. I had to point out to their "software expert" that there is no upgrade path from Home to Business, so what they just quoted would put my client out of license. I have never used the 90 day rule on OEM software, is that only available if you buy SA? What if it's 4 months later? I can understand limiting SA to 90 days after, but the move to OVL should be as easy as paying the difference at any time.

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  5. Stacey, you said: "Robert assumes that, after 9 years, the client would still be using the same version of Office, which I highly doubt it...3 years, maybe, but after 4 or 4, they are more likely to want, or be forced to upgrade."

    No, what I assumed was that the client would upgrade their version of Office when they replaced their computer via OEM every three years.

    As I said, OVL *only* makes sense if the business wants/requires the most current version of Office. I'm having that discussion with a 60-seat client right now.

    My client's computers are mostly 3-4 year old Dell pc's. Their sales guys just bought new laptops with Office 2007 and their wondering what the options are to upgrade the rest of the company to 2007.

    Now, they're not exactly doing CAD design work on these things, and with Win-XP, the computers are running like tops. So with that said, it would seem to be wasteful to toss the computers and buy new PCs just 'cause.

    So in this situation, it may just make sense to buy OVL. There are pros and cons all the way around. So, since it's my job as their outsourced IT dept., I'm going to provide that information and make my recommendations.

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  6. Now a 60-seat license is another story. Now the hassles, frustration, and labor become significant.

    Upgrades will be cheaper for the software, but all savings will disappear as you spend the labor to install.

    This client needs to move to licenses. You can do an executive install on the server and push the office license to the desktops.

    Don't need SA or open value for the upgrades since Office 2007 was just released. There won't BE a new verion in the next 2-3 years.

    The only argument is then for spreading out those payments across three years. You can do that with OVS, but you're paying a much higher price.

    Or . . . you can do it with Microsoft Financing! If the licenses are in the range of $400 each, that's a one-time outlay of $24,000. Or even monthly payments of about $800 per month for three years. Of course this doesn't include any price breaks for a 60-seat purchase.

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  7. StaceyC5:38 PM

    Sorry, Robert, I understand your point.

    No, what I assumed was that the client would upgrade their version of Office when they replaced their computer via OEM every three years.

    As I said, OVL *only* makes sense if the business wants/requires the most current version of Office. I'm having that discussion with a 60-seat client right now.


    I assume you meant OVS and not OVL in this case? For 60 uses, licensing is definately the way to go...the only advantage to SA with O2k7 would be home use rights.

    Good discussion :)

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  8. Don't want to beat this poor dead horse too much.

    But today I had a client ask whether it was cheaper to buy Small Biz Edition plain licenses vs. OVS.

    Basic license is $450 each. Times 5 for office. Plus 2 for home use. That's $3,150 for the full set. If they buy it all again in 2011 and again in 2015, that's $9,450 total.

    OVS would be $450 the first year plus $900 per year for 5 licenses. Two home uses are no extra charge. Through the year 2017, their total outlay is $8,580.

    Either one gets you ten years of Office.

    My assumption on upgrades is that you'll get each version somewhere in it's 4-5 year lifespan, either because you choose to or you're forced to by your clients and partners.

    Note: the numbers are identical if new releases are in 2012 and 2017.

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