Stung by criticism of its new licensing rules, Microsoft Monday backed off a requirement that customers buy Office XP to participate in the new program and extended the deadline for companies to get current with other changes by another five months.

Microsoft's new licensing program for Windows and Office--the rules of which govern how most large companies buy and upgrade the software--went into effect Oct. 1. Under the new rules, companies with 250 or more PCs will no longer be able to buy special upgrade versions of Windows and Office that have been discounted 30% to 40%. Instead, companies that sign up for enterprise agreement contracts with Microsoft and hope to upgrade their PCs must also sign up for a maintenance agreement called Software Assurance that grants customers automatic upgrades when they're released. It also requires that customers pay Microsoft about 30% of their license price each year for the right to upgrade.

The change angered customers who said it would raise their annual budget for Microsoft products. Part of the criticism stemmed from Microsoft's requirement that customers install its new Office XP suite to be eligible for further upgrades of the product, just as many are upgrading to Office 2000. Microsoft dropped that requirement Monday, and customers running Office 2000 now can buy Software Assurance as well. Customers running Windows 2000 or Windows XP also will be eligible.

Microsoft also extended the deadline for customers to buy an older alternative to Software Assurance until July 31, 2002. The deadline for making a decision had been Feb. 28--already a concession by Microsoft. Gartner analyst Alvin Park says companies that upgrade Office every three years will see prices rise 35% to 77% annually under Oct. 1 rules.