What Microsoft's upcoming 'outsourcing' licensing changes could mean for your business

Enterprise customers relying on Microsoft 'Bring Your Own License' option to run Windows Server, SQL Server and other enterprise software in Amazon's or Google's clouds may be in for a rude awakening this fall.

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Credit: Microsoft

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Microsoft's cloud competitors have been making a lot of noise about changes in Microsoft's licensing coming on October 1. And Microsoft, which has been positioning itself as an ally of customer choice, found itself on the wrong side of accusations of untrustworthiness and price-gouging.

What's the beef? A new Microsoft licensing policy around "outsourcing" is going to end the ability for Amazon and Google to provide their customers with a way to bring their existing Microsoft enterprise software licenses to their respective clouds for a lower price.

Microsoft officials made the licensing changes public as part of the company's introduction of a preview of Azure Dedicated Host, its new, single-tenant cloud option. Officials said earlier this month that they are changing the licensing because dedicated cloud options are more like multi-tenant cloud offerings than they are like on-premises data centers, and thus should be governed by consistent cloud-licensing policies.

"Dedicated hardware was a loophole. The hardware was dedicated to you, so it behaved like it was an on-premises system of yours," even though it was a cloud option offered by AWS, Google and now, Azure, explained Wes Miller, a
research analyst with the Directions on Microsoft research firm. 

Microsoft's competitors are trying to make the case that Redmond's policies never banned customers from using the "bring your own license " (BYOL) option to their clouds. Microsoft is arguing that only third-party service providers (aka its cloud service provider partners), not other competing cloud vendors should be able to offer customers this option. However, up until now, Microsoft's licensing terms around dedicated hosts were vague and non-existent. 

Amazon promotes prominently the BYOL option as a key way for customers to run Microsoft software on the Amazon cloud.

(Semi-related aside: This situation reminds me a lot of what happened recently between Microsoft and its channel partners over Internal Use Rights. Microsoft officials said this year that the company never intended for its partners to use software made available to them under their partner agreements to run their businesses; the software was meant to be for demo purposes only. But Microsoft never enforced those policies. It announced plans to do so next year -- but subsequently rescinded -- in July.)

BYOL is a way for business users to take their existing Windows Server, SQL Server, and other Microsoft enterprise software licenses and use them in the cloud. The Microsoft BYOL rules already are different for Azure and other clouds. BYOL on non-Azure clouds is officially called License Mobility; on Azure, License Mobility usually goes by "Azure Hybrid Benefit."

Microsoft's upcoming licensing change is going to be "massive" for customers who've been using AWS and Google Cloud dedicated hosts to run Windows Server and Windows client, says Directions on Microsoft's Miller. "Why? Those products never offered -- and still don't offer -- License Mobility through Software Assurance," he said.

Microsoft officials note that beginning October 1 "on-premises licenses purchased without Software Assurance and mobility rights cannot be deployed with dedicated hosted cloud services offered by the following public cloud providers: Microsoft, Alibaba, Amazon (including VMware Cloud on AWS), and Google. They will be referred to as 'Listed Providers.'"

On October 1, customers who already are running Microsoft on-premises software offerings from these listed providers will be able to continue to deploy and use Microsoft enterprise software under their existing licenses. But they won't be able to add workloads or upgrade to a new product version released after October 1 under their existing licenses. And after October 1, those with Software Assurance can use Microsoft software on those dedicated offerings only using License Mobility or Azure Hybrid Benefit rights, Microsoft's FAQ says.

Yes, this is as much of a complex mess as it sounds like from my feeble attempt to break all this down.

I do find it ironic that AWS is complaining about this because these moves could hinder the ability of customers to "break free from the old guard vendors." Many customers still want and need (more need than a want, I'd think) to use "old-guard" Windows Server, SQL Server, Office client and servers somewhere -- in their data centers, in those run by Microsoft, Amazon and Google, or both.

The big cloud vendors say they're against lock-in and are in favor of customer choice. But when push comes to shove, they ultimately are against handing business to their competitors.