Microsoft Corporation (NASDAQ:MSFT) may have been hiking enterprise agreement (EA) renewals for client businesses by as much as 43 percent, according to an analysis by a fledgling consulting company that claims several former Microsoft employees among its ranks. The Sacramento-based company, Software Licensing Advisors, was started in June and helps its enterprise (business) clients negotiate licensing agreements and gives audit advice and provides seminars about the details of Microsoft’s licensing.
Peter DeGroot, who is a senior consultant at SLA and is a prominent expert on Microsoft Corporation (NASDAQ:MSFT) licensing, revealed that Microsoft EAs, which usually stand for three years, go up in price with new agreements. DeGroot separated the actual cost for the licensing from the combined amount listed on the company’s renewal forms. Microsoft Corporation (NASDAQ:MSFT) doesn’t break out the figure but states the figure includes Software Assurance and licensing costs.
DeGroot figured out when he broke down the numbers that Microsoft Corporation (NASDAQ:MSFT) charges 43 percent more on the licensing because the company doesn’t renew at the discounted EA price for licensing, but rather charges the rate for a Select or Select Plus agreement. Microsoft stopped selling the Select agreements last year, but the Select Plus agreements are, like the EAs, for companies with 250 or more PCs to license, but offers easier versions of licensing. The rate increase, according to DeGroot and SLA’s calculations, could mean an additional $94,000 in licensing fees over three years for a 2,000-computer network.
Is Microsoft Corporation (NASDAQ:MSFT) taking advantage of customer loyalty to hike the rate, enough to make more money from its enterprise clients, but not enough to justify the clients completely changing over their networks? The relationship with IT clients may not be so fragile that it could pay off as more revenue for Microsoft, which would be good news for investors in the stock like hedge-fund manager Seth Klarman of Baupost Group.