Microsoft"s recent surge in unearned revenue, mostly from volume licensing, masks an important buying trend: businesses holding off on server—and even some desktop—software upgrades. The situation is an opportunity for IT organizations to drive hard bargains for extra benefits during Microsoft volume licensing negotiations. At a cursory glance, Microsoft would appear to have the advantages of a seller"s market when negotiating volume license contracts.
During Microsoft"s 2007 second fiscal quarter, unearned revenue reached $11.9 billion, up from $10.1 billion a quarter earlier, mostly buoyed by stronger-than-expected license contract renewals. New Office and Windows versions contributed to renewals. In a report published yesterday, Goldman Sachs analyst Sarah Friar broke down the revenue sources for Microsoft cash cows Office and Windows. "About 40 percent of Office revenues are from fully packaged product and volume license agreements, 40 percent are from annuity contracts, and 20 percent are from OEM sales, compared with about 5 percent, 15 percent, and 80 percent for [Windows] client revenues, respectively," she wrote.