By Mary Jo Foley
Special to CNET News.com
December 15, 2000, 4:30 p.m. PT
Attributing the change to increased business demand for Windows 2000, Microsoft next year will end volume discounts for consumer versions of its Windows operating system.
Microsoft said it began informing customers and its reseller partners of the change on Friday. The shift in policy comes at a time when some analysts are questioning just how much demand--corporate or consumer--there really is for Windows 2000 on the desktop.
One analyst said Microsoft's decision to end volume licensing of consumer versions of Windows will result in a price increase for a number of businesses.
The screw is turning here. If you're an enterprise organization and have a lot of Windows 95 or 98 out there, Windows just got a whole lot more expensive, said Gartner analyst Chris LeTocq.
LeTocq said Microsoft's announcement should be interpreted as a revenue enhancer, a move that can come none too soon for the company.
Microsoft issued a profit warning Thursday, citing IT and consumer PC demand for its desktop applications as the primary reasons for restating both its second-quarter and fiscal 2001 earnings.
During the conference call that followed the announcement, executives said demand for application software, especially Office, shared the blame for Microsoft's five percent reduction in its projections. Some analysts said slower-than-anticipated Windows 2000 sales were contributing to Microsoft's slowdown.
Microsoft sells its applications and operating system products to business customers under a number of volume-licensing programs, including Select, Open and Enterprise Agreement (EA) deals. Under these contracts, customers buying products for more than five PCs receive discounts based on the number of products they buy.
The changes announced by Microsoft on Friday affect its Select, Open and EA customers.
We are responding to customer demand, said Simon Hughes, Microsoft program manager for its volume-licensing group. We are recognizing the licenses that customers are buying.
Hughes denied that Microsoft was attempting to foster additional corporate demand for Windows 2000 through these changes.
These changes have been planned for some time, Hughes said. They are a recognition of the demand we've already been seeing.
As of March 1, Windows Millennium Edition will no longer be available under Microsoft volume licensing agreements. Windows 95 and Windows 98 will no longer be available for volume licensing after June 30. The products will be available only through retail outlets, reseller deals and preloaded by PC sellers.
In addition, customers who purchased Windows 95, Windows 98, or Windows Me under corporate Select or Open volume-licensing agreements will not be able to grandfather those operating systems into their contracts after Dec. 31.
The original decision by Microsoft to provide a business-oriented volume-licensing option for Windows Me was unusual, since Microsoft has insisted for some time that Windows Me was never aimed at business or corporate customers.
The operating system, which Microsoft debuted in September, was aimed squarely at consumer and home office customers, which would have little need for multiple copies purchased under volume agreements.
Windows 95 and Windows 98, however, are still used by many businesses. A number of corporations have been reluctant to upgrade to Windows 2000 Professional until they also upgrade their servers to Windows 2000 Server or Advanced Server, since users will not derive full benefits from the Windows 2000 product without a simultaneous upgrade.