Microsoft licensing: How the cloud is changing your software options

Is buying software really becoming less complex?

Is buying software really becoming less complex?

In the tech world there's probably only one thing more complicated than software integration: software licensing. The complexity and cost of figuring out which licences to buy can leave the most hard-headed CIO reeling with confusion - and that's before adding the fresh licensing headache being caused by the move to cloud-based computing.

Perhaps because of its ubiquity in enterprise environment that comes from its array of products, Microsoft's myriad licences are often held up as an example of that complexity - Microsoft CEO Steve Ballmer has admitted in the past that the company could do more to make its software licensing simpler. And now the company insists it is streamlining its licensing structure while preparing the move to cloud-based services.

In an exclusive interview with silicon.com, Microsoft UK's managing director, Gordon Frazer, agreed that the company's licensing is complicated, but said it is making an effort to reduce the number of licence options, to make it easier for customers to understand what software they're buying and how to get the best value for money.

Microsoft campus in Redmond

Microsoft's licence portfolio is often seen as being too complicated and confusing
(Photo credit: Microsoft)

Frazer said the number of licensing options Microsoft has means it offers choice "and choice, by definition, comes with a certain amount of complexity". Frazer told silicon.com: "If we only had one model, and the one and only model we had was 'pay X per user per month', that's a great model: but doesn't necessarily suit everybody for everything."

"We've reduced the number of licensing programmes we have significantly. We've reduced the complexity of those. The amount of terms and conditions, clauses etcetera on our contracts is something we continue to focus on reducing over time," he added.

A couple of licence options introduced in the past year have addressed the issue according to Frazer.

The first is the Enrolment for Core Infrastructure licensing model for businesses with Microsoft enterprise agreements, which combines three products (the Windows Server operating system, Microsoft System Center server management, and Microsoft Forefront Client Security) to, in theory, make them easier to license.

In addition, the Enrolment for Application Platform model allows customers to manage their application platform server investments - such as SQL Server and Office SharePoint Server - with a single agreement rather than numerous licences for each product. This was intended to make the task of managing licences less complex by bringing several products under a single licence.

However, analysts feel the situation hasn't changed that dramatically...

Stewart Buchanan, research director at Gartner, says there has been little evidence - judging by licensing documentation and product SKUs - to suggest there has been a reduction in the number of software licences by Microsoft.

He said Microsoft's myriad licensing options still mean it's very hard for business to determine what would suit them best. He said: "Microsoft benefits from a larger number of options when it becomes impractical for clients to evaluate them all to try to determine their least cost option."

And fellow Gartner analyst Frances O'Brien told silicon.com that licences don't appear to be getting simpler. "It's still fairly complex for most organisations to understand a lot of the subtle nuances around the licensing programmes. I'd love to say that yes, they are becoming simpler, but I just don't see it," she said.

O'Brien added that the Enrolment for Core Infrastructure programme is "one of the more confusing programmes that they have for clients" as it only allows customers to license Windows Server on a server client access licence model rather than per processor model. In addition, the bundling together of three products means people not interested in all of the products won't find it of any use.

O'Brien agrees Microsoft needs to offer this level of choice due to the number of products it offers and the huge variety of businesses that use its technology. But she added that the company needs to become more consistent in how it licenses the same products if it's to reduce complexity.

She said: "Trying to figure out ways to license all of those disparate pieces of technology is not easy and Microsoft - unlike some of the other vendors - really do try to make their customers happy. Certainly it would be nice if things were simpler but I'm not quite sure how you do it."

"This is not a Microsoft thing - licensing in general just happens to be complex," she added.

But as Microsoft offers more cloud-based software services the number of licensing options is likely to increase further.

With online versions of Office (Office Web Apps) and Business Productivity Online Suite, as well as the company's cloud platform, Windows Azure, Microsoft is starting to push its cloud technologies to customers much more.

As a result, Microsoft customers will increasingly want to experiment with combinations of on-premise and cloud-based technologies which will require flexible licence options to help them do this...

Microsoft's Frazer said the company is trying to evolve its licensing to cater for businesses looking to try the different ways of accessing technology as well as those using more traditional approaches.

"If you have a licensing model from 10 years ago it won't work for those new technologies so you need to modernise and change your licensing model but you can't necessarily kill the old one, because the old one maybe some people are using - so that's where the simplification challenge comes - but we can still make it easier," he said.

Microsoft's Software + Services programme is an example of how the company is addressing the combined use of cloud-based and on-premise technology. Essentially it allows companies to pay an additional fee for the online services on a per user per month basis without having to negotiate a new set of licences for on-premise technology they already have.

A business may, for example, be using an on-premise version of the SharePoint collaboration technology internally but decide to extend this for employees working with external partners and require the online version.

Microsoft's datacentre in Dublin

Licensing will become more complex as Microsoft runs more technology on its own datacentres such as this one in Dublin
(Photo credit: Microsoft)

Microsoft is understandably keen to look after customers with existing investments while also looking at how this will evolve in the future. Frazer said customers are in "different places" regarding the adoption of cloud-based services - and to force everyone to change the way they pay for their technology in one big push would be "arrogant".

"So we're trying to balance the new ways of licensing with protecting our customers and their investments. Our licensing models will continue to evolve over time as technology evolves over time," Frazer added.

However, analysts feel Microsoft's licensing approach needs to be refined to address this transition effectively.

Freeform Dynamics analyst Dale Vile said the differences between cloud and on-premise licensing is not very coherent at the moment. He warned this could mean businesses choosing seemingly cheaper on-premise licences tied to particular devices - and paying multiple times - rather than cloud options which can be moved between devices.

Bob Tarzey of Quocirca is also unconvinced about Microsoft's approach to licensing cloud technology, saying the company is still wedded to the on-premise approach, arguing that Microsoft's agenda is to provide free cloud-based tech as a "lure to buy hosted based licences" with Office Web Apps being a prime example to promote the on-premise Office 2010.

Frazer admitted that online services currently make up a tiny proportion of Microsoft's revenues but he is confident this will soon change. "The lion's share of our business today is still done through the traditional licensing models [but] services is growing very rapidly - it's growing faster than any of the others, quite considerably so."

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