By Caroline Humer

LAKE BUENA VISTA, Fla. (Reuters) - Microsoft Corp. MSFT.O made mistakes when it introduced a new software licensing plan this year that encourages customers to sign up for locked-in upgrades with fixed payments, Chief Executive Steve Ballmer said on Wednesday.

"We still have customers today who tell us, 'Look, we can't understand your end-user license agreement. It's long and complicated. We don't understand.' So we're looking to simplify those," Ballmer said at the Gartner technology conference.

Ballmer said Microsoft would make some changes to the way it sells its software to businesses, after having made mistakes when it introduced a system of locked-in upgrades and fixed payments.

The move, which was the biggest change in licensing in five years for Microsoft, ended up costing some customers more money, which Ballmer said was problematic.

"We know now we're not going to simplify anything in the way that causes any of the kinds of hardships that we're seeing financially for some of our customers today," he said.

At the end of July, Microsoft fully implemented a new licensing plan that gave business customers a choice of whether to pay regular installments for the right to upgrade to the latest software at any time, or opt out of the plan and pay full price for a full-version software license later.

Previously, customers bought a license -- the right to use software -- and usually made one-time payments for an upgrade, often at a reduced price.

Microsoft shares closed at $43.99, down $1 or 2.22 percent on Wednesday.

NEW OFFICE PROGRAM

In addition to the headaches over software licensing, Microsoft is also facing slower sales of its Windows operating system and Office suite of business software.

In an effort to boost flagging sales of its Office suite of productivity programs, Ballmer unveiled on Wednesday a new program to help businesses record, store and retrieve information more efficiently.

Ballmer told the conference that the new document authoring tool, based on an increasingly important Web-based computer language called XML, was one of the key areas for future growth at the company.

When asked during the conference where future growth will come from for Microsoft, Ballmer pointed to XML, which stands for extensible markup language.

"The big breakthrough, even for the Office suite, lies around the notion of XML," Ballmer said.

The popular Web language allows companies to exchange information in a standard way. It will enable workers to collaborate better with each other and receive support services, Ballmer said.

XML is one of the key building blocks for the next generation of software and services that will enable more intelligent documents capable of harnessing information from networks and the Web.

Microsoft's executives have bet the company on the initiative to blend software and information across a wide ranges of devices, from desktop computers to servers to personal digital assistants, calling it .NET (dot-net).

Microsoft Office product manager Scott Bishop said the new program, code-named XDocs, will debut in mid-2003 as the newest member of the Office suite of software, used for word processing and spreadsheet number-crunching.

XDocs allows users without in-depth knowledge of XML to create forms to record, store and retrieve information more efficiently.

If entered once, such information can be used by a variety of programs, such as Excel, a customer relationship management program and even a Web-based application without tedious reentry. Because XML is Web-based, it can also be shared across the Internet and between different devices.

"Information workers" -- Microsoft's term for the typical office worker who uses computers frequently -- "will be producing XML. They won't know it but they will," Bishop said.

"Most organizations don't feel they're getting the most out of all the information that they have residing on desktops or in servers," Bishop said, "This allows people to contribute as well as consume Web services," he said.

(additional reporting by Reed Stevenson)