Jun 30, 2021
Part I: The Changing Landscape of Microsoft Licensing
Over the years, I have experienced the full range of customer emotions when it comes to discussing the importance of correctly licensing Microsoft software products.
I’ve been presented with many customer viewpoints as to why they may not be correctly licensed:
“it’s too complicated”
“it’s not a priority”
“it won’t do any harm”
“no-one will notice”
“it’s too expensive”
… all of which hold no real traction whilst freedom of choice remains king (or queen); irrespective of the reasons given, there is one principle we should all adhere to:
Correctly licensing is the right thing to do; as in, one must pay for goods or services received.
This may be over-simplifying the subject, but as a starting point, it is an argument which must be disproved and unless contractually agreed otherwise, it does not need to be proved.
To be correctly licensed is to adhere to the product use-rights under the terms of an agreement. But Microsoft licensing can be complex, at times ambiguous and in some areas, ever-evolving; individual product use rights and entitlements may change depending on the type of agreements customers may have and there is a vast array of programme-specific offers through which they can obtain licenses; so, the art of compliance can be a difficult one to master alone.
My intention with this first post is to provide context to the current licensing landscape; to set the scene, to try and provide the background and reasoning behind the licensing agreements construct. In my second post (Microsoft Licensing Landscape — How License Procurement is Changing), I’ll offer my insights into the Cloud Solutions Provider (CSP) programme and the impacts this has had on the customer experience and Microsoft Partner service delivery potential.
Microsoft’s Licensing Landscape
The requirement to license correctly is not changing, but how customers can obtain their licenses is: through a simplified, customer-centric Commerce Experience. The changes will not negate customers’ need to be responsible for the compliance of their license estate with clearly defined processes and effective administration and management of their software assets, but the future-state objective is to reduce complexity and provide customers with a single purchasing platform experience, irrespective of the purchasing motion they use by:
· Putting the customer needs first — ensuring the best purchasing experience and outcomes.
· Creating clarity on Microsoft’s purchasing motions — aligning to support customers’ needs.
· Recognising the role and relationship between customers and partners — helping customers get the most value from their technology investment.
With consideration to the changing business computing landscape and the need to maintain viable licensing structures which align to the evolving needs of customers, Microsoft is adapting and revising its route to market and is undergoing a shift in balance to their licensing models and agreements.
The changes to licensing models, gradually and subtly being rolled-out, have seen the barriers to entry lowered and access to enterprise-grade software for all organisations never be more attainable and this is set to further improve in the future.
Microsoft’s business model, once traditionally attractive to investors because of their ability to predict income revenues based on customers’ capital investment every 4 to 5 years to upgrade software, has shifted heavily towards a repeatable, operational cost subscription model with annuity revenue.
The Microsoft software life cycle was self-perpetuating and aligned to the expected run time of the hardware upon which their software was installed. Major version releases followed a pattern of substantial new version releases every 4 to 5 years, and incremental version releases at the half-way interval with mainstream support available for 5 years from date of release (and extended support for a further 5 years thereafter).
Microsoft, quite rightly, have strived to protect its value and ensure they maintain the level of return on their investment for the development and creation of increasingly advanced product feature and functionality sets.
This has partly been achieved by ensuring the comparative cost for using their products has kept parity with the increased capabilities of the underlying hardware upon which the software is deployed. However, this is generally only sustainable whilst businesses continue to invest in new or additional on-premises hardware servers to run their software and, in turn, if businesses retain the physical (on-premises) offices to house their hardware servers.
How does Microsoft maintain a ‘guaranteed’ income from server software if they are unable to determine the scale of demand for their on-premises server software?
This is a loaded question. Greg Taylor, Director of Marketing for Exchange stated at Microsoft Ignite 2020: ‘the next versions of (Productivity Servers) Exchange Server, SharePoint Server, Skype for Business Server will be available in the second half of 2021 and only be available with the purchase of a subscription license.’
This isn’t too far from the current state; for example, Microsoft 365 E5 includes product use rights for installing Productivity Servers on-premises and the corresponding Client Access Licenses, including for Windows Server, to access these servers.
The reasons perceived to be driving this change, at a high-level, include:
· Microsoft’s wish to reduce the operational cost-burden both they and the partner eco-system incur maintaining and supporting products, which may be up to 10 years old before the extended period of support ends.
· Alleviate customer anxiety surrounding the upfront capital investment for perpetual licenses in a world of uncertainty, and more closely align with customer expectations that products and services should be available to rent ‘… as a Service.’
· Enable Microsoft to increase partner’s level of customer involvement (and responsibility) by providing the opportunity, through the CSP programme, to include value added professional and managed support services with the supply of subscriptions.
To further evidence this view, in October 2020, Microsoft announced it will be retiring its Microsoft Open License Programme (MOLP), one of its longest-running licensing programmes aimed at organisations of 5 to 250 seats, from 1st January 2022.
MOLP enabled small businesses to purchase multiple products at a comparative discount, when compared to the cost of the equivalent full-packaged products, and helped customers align with Microsoft’s software release lifecycle.
Microsoft has called upon partners to start helping customers transition to suitable, alternative licensing agreements; depending on each customer’s business needs, the options available to smaller organisations will inevitably include heavy-subscription-biased licenses.
Microsoft has always relied upon reseller partners to sell and support its software, but the apparent emphasis was always placed upon the Licensing Solution Providers (LSPs) and Distributors at the top tier of dominance with almost total exclusivity to the enterprise customer market.
In Summary
The challenge to manage license non-compliance will always exist, however, as this post outlines, the means by which obtaining your Microsoft licenses, is changing.
· Microsoft’s objective is to reduce complexity and provide customers with a single purchasing platform experience.
· Their business model has shifted heavily towards a repeatable, operational cost subscription model with annuity revenue.
· Microsoft Open License Programme (MOLP) is set to retire from 1st January 2022, setting in motion the need for small businesses to find alternative licensing agreements.
My next post (Part II , Microsoft Licensing Landscape — How License Procurement is Changing) will look at the Cloud Solution Provider (CSP) programme. CSP was Microsoft’s first major overhaul of the licensing channel market in many a year, expanding the service delivery potential between Microsoft partners and their customers. How has this programme impacted the market and the customer experience? Part II will offer my insights.
Version 1 has deep Microsoft license expertise and can help you navigate your way through the complex topic of license compliance and optimisation. By understanding your future technology decisions and current pain points, we can advise and guide on optimal licensing constructs to ultimately reduce cost and risk.
For more information, go to Version1.com or contact us.
