The pricing issues that midrange MIS managers face when considering a move to Windows 2000 are daunting. That’s why Microsoft released Win2K pricing months before the product actually started shipping in February. Microsoft’s pricing schemes leave customers with difficult choices. Moreover, having made the choice to go with Win2K, getting the Windows upgrade to pay for itself, particularly on the desktop, will be problematic if Windows 2000 upgrade cost projections are borne out.

In general, Windows 2000 pricing is consistent with the current Microsoft Windows NT 4.0 releases of Microsoft’s commercial Windows operating system. The Windows 2000 Professional edition, which is analogous to Windows NT Workstation in the current product line, is expected to have an estimated retail price of $319, with upgrades from Windows NT Workstation costing $149. These prices are exactly the same as current NT desktop prices. Microsoft is also offering an upgrade from either Windows 95 or Windows 98 that costs $219. This is a new upgrade path. Server versions of Windows 2000 cost more than the current Windows NT Server 4.0—sometimes a lot more. Microsoft says that price increases reflect the cost of investments it has made in new technologies such as Active Directory as well as in Web serving and security features. Win2K Server with five Client Access licenses (CALs), not to be confused with IBM’s Client Access product, costs $999; with 10 CALs, Windows 2000 Server costs $1,199; and with 25 CALs, it costs $1,799. When you compare these prices to Windows NT, base license costs have gone up between 6 and 23 percent.

This may seem like a justified and modest upgrade cost, but considering that many customers, fearful of Windows 2000’s many bugs, will buy Windows NT 4.0 and then upgrade to Win2K later, the real cost of getting to Win2K is a two-step upgrade, not a one- step upgrade as Microsoft’s pricing grid implies. (See Figure 1.) Microsoft has set it up so that customers who go with Windows NT 4.0 now and Win2K later will pay big upgrade costs down the road while those brave enough to go straight to Win2K Server will pay with technical woes but save on software fees. The financial penalty for going to Windows NT and then to Win2K is particularly expensive compared to just staying with Windows NT, costing 53 to 62 percent more than the original Windows NT license.

The Windows 2000 pricing dilemma doesn’t just end at the costs of migrating Microsoft operating systems. In many cases, customers will have to buy new hardware to support Win2K, whether it is on the desktop or on the server, or they may have to upgrade components in their existing machines—add memory or disks—to support Win2K. In

addition, not every Windows 9x or Windows NT application is going to run on Win2K, so some applications will have to be upgraded. And then there are the people costs associated with performing the upgrade, which dwarf all of these other costs.

A total cost of ownership analysis of upgrading from prior Windows desktops to Windows 2000 indicates that it will be very difficult for customers to get a return on their substantial investments over the course of three years. Gartner Group ran a couple of scenarios for upgrading 2,500 desktops from Windows 9x or Windows NT to Windows
2000. The best-case scenario showed that it would cost about $1.04 million, or $418 per seat, to plan the installation and roll out Windows 2000 on 2,500 seats that were formerly using Windows 9x. Based on the assumption that customers would have to upgrade three applications on average and about 30 percent of those 2,500 seats would need new PCs and another 20 percent would need some kind of hardware upgrade, an additional $3.99 million in capital costs would be incurred, bringing the total upgrade cost to $2,015 per seat. Those costs include planning application changes, acquiring the applications, and training end users to use them, all of which add up to more than just a few hundred bucks per seat. (Some of us at Midrange Computing believe that Gartner Group has overstated the application software upgrade costs.)

In a worst-case scenario where it takes more time and resources to do the upgrades (but capital costs remain the same), Windows 2000 upgrade costs skyrocketed to $3,191 per seat. Gartner Group figured that because Windows NT customers were already on more heavily configured PCs and administrators were already familiar with the Windows NT style of doing things, the cost of moving 2,500 Windows NT seats to Windows 2000 would range from $3.17 million to $5.11 million, or $1,268 to $2,044 per seat. They also assumed that Windows NT users only had one primary application that would have to be ported to Windows 2000, rather than the three with Windows 9x users.

With these kinds of numbers, it comes as no surprise that everyone is looking for a modest ramping up for Windows 2000 at the world’s corporations. End users and application servers that require Win2K will get it, but for jobs that can wait, companies will wait to deploy Win2K. And they should. It will be a lot cheaper to drop in whole new Windows 2000 machines and gradually introduce it into the corporate culture than it will be to do it in one fell swoop.