The true cost of productivity software

Article Simon Jones Jan 29, 2012

Working out the cost of Information Technology can be difficult. Every company has slightly different circumstances, requirements and prospects. What’s right for one company now may not be right for another company or even for the same company sometime in the future.

As we can’t hope to give advice that fits every possible organisation we’ll concentrate on a fictitious example company but explain all the options it faces and the decisions it makes so you can see how the options apply in your particular circumstances.

Acme Couriers is a medium-sized firm with about 100 employees. The workforce is primarily office-based with some sales and support staff who are mainly out on the road and some people who work from home at least some of the time.

The company has grown in spurts since it was founded five years ago with just ten staff, but it has always struggled a little with its IT systems: they're a bit of a mish-mash of off-the-shelf PCs bought from the cheapest suppliers whenever they were needed. There’s a mixture of Windows XP, Vista and 7 operating systems and Office 2003, 2007 and 2010.

The old IT manager has left and a new IT manager has been appointed and told by the Managing Director that he expects a new influx of staff bringing the total number up to about 150 within a year. Of course the MD is also mindful that difficult trading conditions could cause the number of staff to go down as well as up and wants to ensure that the IT system will be flexible enough to cope with this eventuality.

The company currently use a web-based mail system provided by its Internet Service Provider and has an old Windows 2003 file server which is definitely on its last legs. The MD, the Finance Director and Operations Director are all enthusiastic about using Exchange, SharePoint and Lync to streamline their business, making it more efficient, so need to know what the options are and how much they will cost.

Buying options

Let’s leave aside the cost of any hardware for a moment and look at the options for purchasing software. The software we need can be acquired in any of four different ways – Retail, OEM, Volume Licencing and Subscription.

Each method has its own good and bad points and you need to consider them all to be able to make an informed choice about what’s best for your company, not just now but in the long term. Long term for software has to be many years. Microsoft releases new versions every two years and licensing agreements are for two or three years so we need to look 6+ years into the future to get a realistic picture.


This means buying boxed product off-the-shelf from a bricks-and-mortar or on-line shop. You get a licence to run the software in-perpetuity on one machine. You can transfer the software to another machine, if you uninstall it from the first. You may also get the right to run the software on two machines (say a desktop and a laptop) providing they are not used at the same time.

Server software may come with several “roles” that can be installed on one or more machines. Installing the roles on separate machines usually requires as many licences as there are machines. Microsoft no longer sells upgrades. If you want to buy a later version of some software you already own then you have to buy the software again – at full price.


Original Equipment Manufacturer licences are for software bought with a new PC or server. It is usually cheaper than Retail for two reasons. First, support has to come from the hardware manufacturer not from Microsoft and, second, the licence to use the software dies with the hardware: you cannot legally transfer the software from one machine to another. If you pension off an old computer and buy a new one you have to buy the software again.

You also don’t get two, non-concurrent-use, installations of products such as Office, and there are no upgrades on offer.

Volume Licensing

Microsoft has various volume licence deals suitable for everyone from a multi-national mega-corporation all the way down to someone who just has five PCs. You can use these schemes to purchase software licences and Software Assurance (SA).

You can arrange to pay up-front for your licences (and SA) or to spread the costs over several years. The licences carry all the benefits of Retail – such as being in-perpetuity and allowing multiple, non-concurrent use, installations, where appropriate – but also give a range of extra benefits such as tools for automated installation, extra training for IT staff, the ability of users to install the software on their home PCs or to purchase extra copies at greatly reduced prices.

Software Assurance effectively means paying a reduced price for the next upgrade before you get it. SA agreements are for two or three years and entitle you to upgrade to whatever new versions of the software are released within that period. You don’t have to upgrade until you want to but when you do, you’re covered without having to buy the software again.

At the end of the SA agreement you can take out another for the next two or three years or stop paying and stick with the current version at the time your agreement ends. You can purchase SA agreements for Retail and OEM licences providing you do so within 30 days of your purchase. The on-going SA cost is usually just under half what you would pay for the initial Licence and SA together. Some licence plans include SA whereas others have it as an optional extra.


Buying software on subscription gives similar benefits to Volume Licencing with Software Assurance except that if you stop paying you have to stop using the software. Subscription deals can be monthly or annual payments and Office 365 falls into this category.

Retail licences are the most expensive and OEM licences are cheap but restrictive. Volume licence deals usually fall in the middle but give more benefits and can keep you up to date with new software versions. Subscription licences are cheaper than volume licences but you don’t get to keep the software if you stop paying.