Microsoft walks softly and carries a big stick

Since its inception, the Enterprise Edition of Windows NT Server has troubled me. Why does the software package cost so much and offer so little additional value? Recently an insider offered me an answer--­a really scary answer.

Slippery Pricing
When Microsoft wants to raise a product's price, it does so unobtrusively, often through the product's licensing provisions. By changing software licensing, the company makes apples-to-apples comparisons of two products or two versions of a product difficult.

Back when NT 3.1 appeared and Microsoft wanted to woo customers away from Novell, you could buy NT Advanced Server 3.1 for $1500. For that fee, you could put as many users on an NT server as you liked. This was an excellent deal compared with NetWare 3.11's pricing, so NT gained market momentum. Microsoft changed its pricing structure for NT Server 3.5, requiring customers to purchase a $40 Client Access License (CAL) for each user. Then came NT Server 4.0, Standard Edition, which costs $809 with five CALs. At $40 per CAL, NT Server 4.0 without clients is worth $609. Now Microsoft has thrown NT Server 4.0, Enterprise Edition into the mix. Enterprise Edition comes with 20 CALs and costs $3999, so Microsoft must reckon Enterprise Edition is worth $3199, more than five times as expensive as NT Server 4.0, Standard Edition. (I found all these prices on Microsoft's Web site in late September 1998.)

Enterprise Edition's pricing has never made sense to me because the only reason I see to buy the product is Microsoft Cluster Server (MSCS). Most of Enterprise Edition's other goodies are esoteric or come free with the NT 4.0 Option Pack. MSCS is nice, but it lacks load balancing (although Microsoft recently purchased Valence Research to plug that hole) and requires expensive hardware and software. To run MSCS, you need two machines, extra Ethernet cards, an external drive array, and differential SCSI on the computers--­and you don't get much choice about which computers to buy, because Microsoft has approved far fewer machines for Enterprise Edition than for Standard Edition.

Despite these high hardware costs, MSCS's biggest expense is the enterprise software it requires. To attain MSCS's benefits, you have to buy special versions of your applications. SQL Server 6.5, Standard Edition isn't sufficient for MSCS servers; you need to buy SQL Server 6.5, Enterprise Edition to run the product on a Microsoft cluster. And although clusterizing an application is no big deal, a 25-user SQL Server 6.5, Enterprise Edition license retails for $7999--­$4000 more than the Standard flavor costs. I thought a cluster's OS accomplished most of the fault-tolerance work. I don't see how Microsoft can justify doubling the price of applications that run on MSCS when other clustering offerings (e.g., Digital Clusters for Windows NT) don't require clusterized applications.

A Revelation
A source inside Microsoft (I'd call him an unimpeachable source, but that word has other connotations these days) helped me understand why Enterprise Edition is so expensive. Enterprise Edition is just another way of quietly raising NT's price. My source told me that Enterprise Edition's pricing structure is the first step in a plan to seriously differentiate the two editions of NT. "Like most companies, Microsoft is mainly concerned about making its top few hundred or so customers happy," my source said. Fair enough. But then he continued, "The trick is in separating the markets. We feel that we've just plain put too much stuff in NT, and we're giving it away too cheaply. The idea is that we'll stop adding things to Standard Edition and do all the new and cool stuff in Enterprise Edition. We can charge a lot for Enterprise Edition because large customers buy it." Is this statement true? The source claimed access to some higher-ups in the Enterprise Edition development and marketing departments.

I've been reporting to you for several years about Windows 2000's (Win2K's--­formerly NT 5.0's) neat new features, but I never thought to ask which of those features run only on Windows 2000 Advanced Server (Win2K AS--­formerly NT 5.0, Enterprise Edition). Perhaps journalists need to make a habit of asking that question.