Microsoft goes public with planned changes to undo restrictive cloud licensing policies in Europe

Microsoft is undoing in Europe some of the restrictive cloud-licensing policies it first announced in 2019, which made running its software more expensive on its competitors' clouds.
Written by Mary Jo Foley, Senior Contributing Editor

In early April, Microsoft officials said they would address some of the complaints from European cloud vendors about restrictive cloud licensing policies that resulted in customers paying more to run Microsoft software in non-Microsoft cloud environments. On May 18, Microsoft went public with its remedial plans via a blog post from Microsoft President Brad Smith.

In that blog post, Microsoft outlined five "European Cloud Principles." The real meat, though, is in the planned changes aimed at leveling the playing field for European Cloud Providers when it comes to running Microsoft on-premises software, like Windows, Windows Server, SQL Server and Office, on their own infrastructure.

Microsoft introduced the outsourcing licensing restrictions in question in 2019. Customers who had been using AWS and Google Cloud as dedicated hosts for running Windows Server and clients were affected directly, but some of them didn't realize the extent of the impact until their contracts with Microsoft were up for renewal this year. Microsoft's changes around its bring-your-own-license terms made their contracts more expensive if they wanted to run Microsoft software on anything but Azure. As justification for its changes, Microsoft officials said rivals like AWS or Google are always free to make similar licensing and pricing moves.

Smith said in April that Microsoft would look for ways to remedy the partner concerns it deemed valid. After European antitrust regulators began digging into partner and customer complaints, Microsoft agreed to look into the matter.

  Bloomberg subsequently published a report citing customers who were none too happy about the new licensing rules.

In today's blog post, Smith said he and other senior Microsoft business leaders had meetings with CEOs of two European providers, plus additional meetings with companies in various European countries. He noted:

"Some of the most compelling feedback for me personally came from a CEO who said that he felt that he 'was a victim of friendly fire in Microsoft's competition with Amazon.' It was hard to hear this - but he was right. Over the past few years, our focus on competing with the largest technology providers has resulted in us not being as attentive to the impact on our cloud provider partners. We are making changes to remedy this, beginning today."

Smith said Microsoft will provide European cloud providers with assistance in enabling Microsoft on-premises software to run on their cloud infrastructure. This expansion of terms will cover Windows, Office and Microsoft 365 apps for business and enterprise. Microsoft also will make it "easier than ever" to license Windows Server for virtual environments by relaxing the licensing rules "that reflected legacy software licensing practices, where licenses are tied to physical hardware." (This was one of the main complaints from Microsoft's cloud competitors after the licensing changes were announced in 2019.) He explained:

"Today, Software Assurance benefits do not include license mobility rights for products such as Windows, Office, or Windows Server, so customers must use that software in more restrictive programs or on hardware dedicated specifically to those customers. We will expand Software Assurance to enable customers to use their licenses on any European Cloud Provider delivering services in their own datacenters, similarly to how they can do so on Azure today, whether the hardware is dedicated or multi-tenant."

Smith also said Microsoft plans to expand the range of products that can be offered to customers at fixed pricing for longer terms, "which will provide more pricing stability and certainty to providers and their customers."

I've asked Microsoft if these remedial measures will apply to cloud hosters and customers outside of Europe, as well -- and if not, why not. No word back so far.

Update: The extent to which these changes help anyone other than European cloud providers is still to be seen. Directions on Microsoft analyst Wes Miller noted today on Twitter that the new language doesn't change the fact that  customers who want to run Microsoft software directly on competitors' clouds are still hamstrung. The new terms only apply to the European cloud providers and their customers, and doesn't address the issues of running Microsoft software on AWS or Google.

Update No. 2: A Microsoft spokesperson responded with the following regarding global impact of today's announcements:

"While today's announcement is focused on Europe, the changes to the Microsoft Cloud Solution Provider and Software Assurance programs are global. We will be communicating directly with our cloud partners and customers in the coming days on the specifics of this announcement and how it will impact them."

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