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Microsoft's cloud licensing changes: what you need to know

Take your Microsoft server apps to the cloud with license mobility

By , Network World
May 18, 2011 05:05 PM ET

Network World - Starting July 1, Microsoft customers will be able to use their current license agreements to move server applications from internal data centers to cloud computing services, and contracts signed after that date will offer the same benefit.

But what Microsoft calls "license mobility" will only be available to customers who pay extra for Software Assurance, which can nearly double the cost of a license. Also, while the license mobility will apply to server applications, it won't affect the server operating system itself.

Here are the details of the changes and how they might affect you.

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In other words, customers will gain the benefit for SQL Server, Exchange, SharePoint, Lync, System Center and Dynamics CRM. But customers who want to spin up a Windows Server instance in a cloud service would not be able to use their current licenses.

Although numerous customers do run Windows Server instances in cloud services, Microsoft official Mark Croft said the Windows Server license is typically provided by the hosting company.

"The idea here is that on the Windows Server level, infrastructure hosters already provide the fabric, if you will, and some level of sophisticated virtualization," says Croft, director of product management for worldwide licensing. "The infrastructure layer, we think, is very the much the hoster environment. The most valuable scenario is to let people move their workloads around."

With Amazon's Elastic Compute Cloud - the largest competitor to Microsoft's Windows Azure - customers simply pay Amazon on a per-hour basis for access to Windows instances, and don't have to worry about purchasing a license from Microsoft.

But those server applications - Exchange, SQL Server etc. - are ones that customers have running internally and may want to lift up and move to, say, the Rackspace cloud service. Without license mobility, a customer that moves a workload to a cloud service without purchasing a new license would be out of compliance, Croft says. "To be in compliance, you would have gone to the hoster and have the hoster buy those licenses on your behalf," he says.

But starting July 1, "customers can just take those existing on-prem investments they already have and simply deploy them on a hosted infrastructure," Croft says. Of course, "the hoster is still in charge of how they want to cost out that hosting fee. But we've taken a major element out of the cost equation by allowing this mobility."

In addition to providing incentive to purchase Software Assurance, license mobility for cloud applications will "make cloud computing an easier decision for organizations which will absolutely increase the number who take advantage of it," according to licensing consultant Cynthia Farren, who blogs for Network World's Microsoft Subnet.

However, Farren adds that "I would like to see this extended to the Windows Server OS as well."

Microsoft previewed the end-user licensing changes in March and discussed them further this month at the annual Tech-Ed North America conference

Microsoft has separate licensing agreements for cloud hosters, known as SPLAs (service provider license agreements). Microsoft lowered the price for most SPLA Windows Server licenses in January, has announced more affordable packages and an easing of workload restrictions for July, and could make further adjustments to both end-user and service provider licenses in October.

Prices vary widely for customer licenses, depending on the product, number of users and the customer's skill in negotiating. July 1, by the way, is the start of Microsoft's next fiscal year, and the end of the current fiscal year is a good time for customers to wring concessions out of salespeople while negotiating contracts.

List pricing for Exchange Server 2010 Standard Edition is $700 and the Enterprise Edition is $4,000.

As a general rule of thumb, adding Software Assurance will not quite double the cost of a license but will add substantially to it. Software Assurance for servers is typically 25% of the cost of a license, multiplied by three years, and 28% of the cost of a license for an application, according to Farren. A three-year server contract with Software Assurance is therefore 175% of the license cost, and a three-year application contract with Software Assurance is 184% of the license cost.

Enterprise agreements with Software Assurance are usually applicable to customers with 250 or more users and devices, Croft says.

Smaller customers without volume licensing agreements therefore have to pay again if they decide to move a workload from an in-house data center to a cloud service. It's obviously a carrot to get customers to upgrade, but Software Assurance does come with other benefits, such as guaranteed upgrades to new versions of products for three years.

When asked why Microsoft isn't extending license mobility benefits to smaller customers, Croft says "we think they should be a Software Assurance customer."

Cloud computing isn't the only growing technology that is affecting Microsoft license policies. The spread of server virtualization convinced Microsoft to offer unlimited virtualization rights through the so-called "Datacenter Edition" Windows Server license, which costs more but doesn't limit the number of virtual machines that can be installed on a physical host.

It stands to reason that more changes are coming to enable greater mobility across virtualization and cloud environments, but Microsoft won't go too far if it starts to affect profit margins.

"We don't have any plans on record" to make further mobility changes, Croft says. "We're certainly going to be keenly watching the adoption from an enterprise customer point of view."

There are also a few other changes to Microsoft licensing agreements that customers should be aware of. The Enterprise Agreement is being expanded to Office 365, Windows Intune and Dynamics CRM, making several Microsoft cloud services eligible for volume licensing.

Software Assurance is also being bolstered with System Center Advisor, a cloud service for assessing server configurations to avoid problems, and Windows Thin PC, a stripped-down, more secure version of Windows 7 designed for thin clients. Windows Thin PC was launched in beta this year and will become widely available by the end of this quarter. 

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