Microsoft's Feature-Cutting Strategy For R2, Longhorn Raises Concern

As it preps two Windows server updates for 2005, Microsoft is struggling to find the right balance between making--and delivering on--promises made to customers during their Software Assurance contract periods.

In the past six months, Microsoft, Redmond, Wash., has found itself in the awkward position of acknowledging that the long-promised WinFS next-generation file system would have to be cut from the Longhorn upgrade of Windows to guarantee its on-time delivery in 2006.

More recently, Microsoft executives confessed that two key features, Network Access Protection and integrated Digital Rights Management Services, which were supposed to appear in its interim R2 Windows Server 2003 update, will not make it into the 2005 server update after all.

Product delays are nothing new for Microsoft, which has traditionally deflected criticism about chronic holdups by saying it would not ship software before it is completely finished.

In an era in which Microsoft pushes annuity-based licensing and software maintenance contracts, however, the company is beginning to do just the opposite: ship software on time but before it is ready.

Analysts said Microsoft has been largely successful in meeting promises extended to its Software Assurance customers: It shipped Office 2003, Windows Server 2003 and Exchange 2003 upgrades in the promised time frames. But under criticism for not getting the Yukon edition of SQL Server and the next Visual Studio out the door in 2004, Microsoft has resorted to cutting features out of planned products to guarantee on-time delivery.

Partners said such tactics could backfire and further frustrate Software Assurance renewals, especially if much-anticipated features end up on the cutting floor after customers sign their deals with Microsoft.

"I thought when Microsoft first decided to discontinue upgrade pricing and replace it with prepaid subscriptions that they were making a big mistake," said Jeff Sherman, president of Warever Computing, Los Angeles. "The only way of convincing anyone to spend money up front is to make them think that there's going to be some real value there. Now that Microsoft has shown it can't deliver on those promises, I think there's going to be almost no renewals of [Software Assurance]."

Observers said customers are likely more incensed about the decision to cut WinFS out of Longhorn than the changes made to Windows Server 2003 R2, since RMS is an add-on they can use today with the server.

In addition to R2, currently due in the second half of 2005, Microsoft plans to release Windows Server 2003 64-Bit Edition, Visual Studio 2005, SQL Server 2005, System Center 2005 and upgrades for BizTalk, Commerce Server and Host Integration Server in 2005, a spokesperson for the vendor said.

The Windows Server 2003 Service Pack 1--which was due to ship by the end of 2004--has been delayed for release into 2005. In December, Microsoft also said its Exchange Edge Services promised for 2005 won't make it in time and will likely end up in a later, full upgrade to Exchange Server 2003.

Microsoft has not rushed anything out to market yet, but its recent decisions to cut features out of Longhorn and Windows Server R2 could cause concern if those features are significant to customers, said Paul DeGroot, a vice president at Directions on Microsoft, a research firm.

"The limits of that approach are sinking in in the form of skeptical customers who don't intend to be fooled a second time. We see customers who are being much more hard-nosed about Microsoft's annuity program and want to know what they'll get for the money they spend," said DeGroot. "Getting a product, any product, out to meet an upgrade deadline would be a very short-sighted strategy and would probably add to Microsoft's grief."

Partners maintain that Microsoft's decisions to change the planned feature sets of R2 and Longhorn upgrades are disappointing, but not deal-breakers.

"I haven't heard anything directly from customers, but I know it's an issue out there," said one executive at a large account reseller who wished not to be identified. "There's no doubt there's pressure on Microsoft to deliver new functionality in that three-year time frame, but we rarely see any company that doesn't have a major rev of the Windows server within three years."

Paul Freeman, president of Coast Solutions Group, a distributor of technology services based in Irvine, Calif., agreed that customers will likely forgive one or two missing features as long as they get at least one upgrade during their Software Assurance contract period.

"Microsoft has established a sales model based around new products and new technologies being introduced in order to stimulate Software Assurance and upgrade sales," said Freeman. "My sense from customers is that if the changes are significant enough, then they're going to migrate, even if there are pieces that are missing."

Samm DiStasio, group product manager for Microsoft's Windows Server group, acknowledged that the company has struggled to come up with the right formula for promising, and then delivering, new features to customers on a more incremental basis, rather than waiting for upgrades to show up every three to four years.

In the past 18 months, for example, the company released several Windows server add-ons, including Windows SharePoint Services and Digital Right Management Services as well as several server feature packs such as Active Directory Application Mode (ADAM).

Several customers said they liked having new features and functionality delivered to them incrementally, but they complained that deploying too many add-ons and feature packs in a short time was time-consuming and costly. To address that, Microsoft decided on midcycle releases, such as R2.

"We swung the pendulum too far with that, and there were so many feature packs coming out the customers said they didn't know when to apply it, so R2 was motivated by that, said DiStasio, noting the Windows Server 2003 R2 represents a midcycle release. The update incorporates fixes as well as new features but makes no core changes to the operating system. so it won't require customers to do regression testing for all of their applications. "This is the happy medium."

He said NAP and RMS won't be included in R2 as originally promised, but other features such as storage resource management, support for branch offices and federation features, are more important to customers who sign up for Software Assurance.

One Microsoft global ISV said the reaction of customers depends on how they typically consume software. Some customers in the financial services industries gobble up new features and add-ons immediately, while manufacturing customers that value stability will wait years before upgrading after a server ships. But he agreed that the pressure is mounting on Microsoft.

"You're seeing pressure for more frequent deliveries on a consistent basis," said Ross Brown, worldwide director of channels at Citrix Systems, Fort Lauderdale, Fla. "Software maintenance is a contract and customers expect to be delivered value in the term of the contract."