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New Enrollments Provide Broad Server Licensing

Posted: 
August 24, 2009

Two new licensing programs focus on bundles of related Microsoft server products used to build custom applications and to manage servers used for virtualization. The new programs, which will be available in Oct. 2009, will be most useful for customers who want to upgrade outdated server platforms or who want to significantly expand their server investments but at a predictable cost, paid over several years. However, the programs require careful long-term planning and introduce numerous exceptions to current licensing rules that will make license compliance more complex.

Platform Licensing

Microsoft has made small efforts in the past to simplify server licenses. Several products that use SQL Server are available with a built-in license for SQL Server, for example, and in Oct. 2008, Microsoft introduced the Application Platform Agreement (APA), focused on what Microsoft calls its application platform, which customers use to build business intelligence, enterprise resource planning, and transactional systems. The APA bundles SQL Server, Visual Studio, BizTalk Server, SharePoint Server (not including Client Access Licenses [CALs]), and the System Center Management Suite Enterprise (a collection of management licenses) into a program that entitles the customer to deploy covered products as broadly as they want within their enterprise during the agreement's term, in return for an annual payment set in advance.

The main advantage of the program is that customers experiencing significant growth can reduce their initial outlay and add new servers at will, with a reconciliation of any difference between what they have deployed and what they have paid to license at the end of the agreement.

New Enrollments

As a follow-up to the APA, Microsoft has introduced two new "enrollments," a term usually applied to sub-agreements within Microsoft's Select or Enterprise volume licensing agreements. In these agreements, enrollments accommodate the needs of affiliates that have varying geographical or operational requirements, for example. Although the new programs are called enrollments, in many respects they function as new types of volume licensing agreements. Customers must have an Enterprise Agreement in place to get these enrolments, but they are not required to have an enrollment that covers their desktop licenses, which is the usual focus of an Enterprise Agreement.

The new Enrollment for Application Platform, and the Enrollment for Core Infrastructure, which will be released in Oct. 2009, build on the APA's efforts to create a broad server-licensing program, although with only limited success—in packaging disparate server products together, Microsoft introduces new and significant licensing exceptions and offers two programs that not only differ from previous volume licensing agreements but also from each other. As a result, customers have more choices to compare, exceptions to remember, and a new set of license attributes that will require manual management since they cannot be tracked by automated asset management tools.

(For a chart comparing selected features of various enterprise licensing programs, see "Comparing New Enterprise Enrollments".)

Enrollment for Application Platform

Like the APA, the Enrollment for Application Platform (EAP) is focused on what Microsoft calls its application platform, on which customers build business intelligence, enterprise resource planning, and transactional systems.

The EAP licenses the same products as the APA, but drops the System Center Management Suite Enterprise. (For a chart showing the included products, see "Enrollment for Application Platform Products".)

The EAP requires that all of an organization's licenses for a given covered product (e.g., SQL Server) be included in the enrollment. Thus, servers purchased before the EAP is signed, such as servers acquired through Select agreements years previously, are brought under the umbrella of the EAP. The EAP requires that Software Assurance (SA), Microsoft's upgrade and maintenance add-on, be attached to all covered licenses, so customers will begin paying SA for older licenses to which SA was not previously attached.

Unlike the APA, which it closely resembles in many respects, the EAP offers discounts (on top of the regular volume licensing discounts) on new server licenses: 15% for standard editions (e.g., SQL Server Standard Edition) and 40% for enterprise editions. However, these discounts are not as generous as might first appear since SA, which is normally 25% per year of the cost of a server license, is based on the full server license price, not the discounted price. Directions calculates that the effective discount from the regular volume price for a customer who purchases an EAP license at 40% is about 23% over a three-year period, and a 15% discount on standard licenses becomes less than 10% over three years when annual SA costs are factored in. Nevertheless, for organizations with large numbers of older servers that want to minimize their upfront costs by paying for licenses over several years, the discounts will be welcome.

The EAP has a starting threshold of a commitment by the customer to purchase at least 15 SQL Server processor licenses, or 10 server licenses and 400 CALs.

EAP True-Up Options

With an EAP, customers have two options for handling payment of licenses added during an agreement. The most conventional option has an annual "true-up" at which time any new licenses added during a year are paid for at the next anniversary date. Customers pay the full license cost, plus SA for half of the current year and all remaining years in the agreement.

The second option, a three-year true-up, has the following characteristics:

  • Customers must commit to 20% growth each year in the number of new EAP licenses they purchase.
  • Annual payments do not change over the three-year period, but are higher than the initial number of licenses would warrant because of the number of licenses the customer is expected to add during the agreement term.
  • New licenses added during the agreement are not counted until the end of the third year, at which time the customer may pay additional license fees if the number of server licenses they added exceeds the number forecast at the start of the agreement. Customers do not get a refund if they add fewer licenses than the forecast.
  • At least 35% of the new licenses must be premium editions of SQL Server, BizTalk Server, or Visual Studio Team Foundation Server.

SA Exceptions

While the program rules mentioned above are different from those of other volume licensing plans (except for the APA, which has similar rules regarding license growth and true-up at the end of the agreement), the most interesting exceptions involve SA.

A longstanding SA rule requires that SA subscriptions be attached to a license at the time of its purchase, with the exception of Windows desktop and server OSs, where customers have 90 days to attach SA. After that, customers who want an SA subscription for a product must purchase both a new license and SA for that license. This imposes a costly penalty (the cost of a second license) on customers who decide later that they want SA on a product.

Another SA rule says that customers have a perpetual right to product versions released during their SA subscription, even if they don't deploy the software during the SA subscription term.

The EAP modifies both of these rules.

SA license waiver. The EAP waives the requirement that SA can only be attached to a license at the time it is initially purchased. A customer who has licenses that they purchased before they signed an EAP, (e.g., SQL Server licenses purchased through a Select agreement) but not SA on those licenses, can attach (and will pay for) an annual SA subscription for those licenses, but they are not required to repurchase the licenses themselves. This is the first time (aside from some special promotions) that Microsoft has permitted SA to be attached to licenses long after their initial purchase.

SA upgrades temporary. When an SA subscription is attached to an existing license (which does not currently have SA attached) through the EAP, the customer can exercise SA rights to upgrade the product to the latest version, but if the subscription expires and is not renewed, the customer must remove all upgrades and revert to the originally licensed version. (Existing licenses with SA in effect when the EAP was signed continue to have perpetual rights to new product versions released during the agreement and do not revert to a previous version.)

This last provision could prove to be an asset management problem at the end of an EAP, as customers try to figure out which of their servers must revert to the original version of the software, and customers may need to manually track those licenses, since few automated asset management tools can determine which upgraded products must revert to an earlier version and which need not.

However, the EAP could prove to be of modest value if a company used it to upgrade servers to the latest version during the agreement and at the end of the agreement retired any servers that were not covered with SA before their EAP started. The net effect would be that they are retiring only old product licenses and were able to purchase the latest versions of the software at a 15% to 40% discount.

Unlimited Problem Resolution Support

Another unusual feature of the EAP is that it offers unlimited product support on servers covered by the agreement. Microsoft's primary support plan for enterprises, Premier Support, comes with a fixed number of hours of support, depending on how much the customer spends. One variation, Premier Ultimate, offers unlimited support but requires substantial customer training and has a much higher price.

To get unlimited support through the EAP, customers must have an existing Premier Support agreement (which starts at about US$40,000) and must spend at least US$250,000 a year on SA in the EAP.

While the unlimited support is welcome, customers will need to quantify its benefits against those offered by other Premier Support programs to determine which best meets their needs at an acceptable price.

Enrollment for Core Infrastructure

The Enrollment for Core Infrastructure (ECI) focuses on the Windows Server platform, with product suites that each include a version of Windows Server, a suite of System Center management licenses (for Configuration Manager, Data Protection Manager, Operations Manager, and Virtual Machine Manager), and Forefront Client Security, which offers malware protection for the servers. A single ECI license provides per-processor licenses for each of these products for one physical server, as well as licenses for one or more virtual machines (VMs) on that server. The cost of an ECI license is only slightly more than the cost of the Windows Server license alone, in effect offering a discount on the management license suite.

As is the case with many Microsoft product suites, particularly those involving server licensing, SA is required for every suite license.

All bundles are sold on a per-processor basis, even if their component products are not normally sold that way. The product bundles are focused primarily on servers used for running VMs, where remote and automatic management of large numbers of unattended servers is important.

Three Levels

The ECI offers three suites, labeled Standard, Enterprise, and Datacenter. (For a chart showing the component products, see "Core Infrastructure Server Suites".)

Standard. The most basic suite, called the Core Infrastructure Server Suite Standard, includes licenses for Windows Server 2008 R2 Standard Edition; standard (i.e., for basic workloads only) management licenses for Systems Center Configurations Manager, Data Protection Manager, and Operations Manager; and Forefront Client Security. These licenses can manage one instance of Windows Server running on the physical machine plus one Windows Server running in a VM if the host OS is used only to manage the VM. The ECI Standard suite does not include Virtual Machine Manager, so it will have very limited utility in virtualization scenarios.

Enterprise. The Core Infrastructure Server Suite Enterprise includes Windows Server 2008 R2 Enterprise Edition, System Center Server Management Suite Enterprise, and Forefront Client Security. This suite requires a minimum of two processors for any server the license is assigned to. The VM entitlements for (and prices of) the server and management suite have been halved: purchased separately, Windows Server Enterprise is licensed to run four VMs at no additional charge, and the Management Suite Enterprise is licensed to manage four VMs, but when they are purchased through the ECI both the server and the management suite are licensed for only two VMs per processor license. The net effect of all these changes is that Enterprise suite will cost only 8% more than the cost of Windows Server Enterprise alone. Directions calculates that the cost per managed virtual machine with the ECI Enterprise Suite on a two-processor server running four VMs is actually about 20% lower than the cost of licensing the components separately. The target market for this product is likely small, since it is useful for only light virtualization workloads, and customers who are doing only light virtualization may not want to commit to the substantial minimum purchase required for the ECI.

Datacenter. The Core Infrastructure Server Suite Datacenter includes Windows Server Datacenter, the new System Center Management Suite Datacenter, and Forefront Client Security. This suite requires a minimum of two processors on the server (and thus, two licenses for the Suite), but permits unlimited VMs at no additional charge for the server OS running in each VM, which can be any version of Windows Server. Microsoft says the suite will cost only 5% more than two Windows Server Datacenter licenses alone. Directions estimates that on a two-processor server running eight VMs the suite offers a savings of about 10% per VM, compared with purchasing the components separately. Organizations that can run additional VMs without adding processors will realize greater savings.

Like the EAP, an ECI has a substantial threshold to start a new agreement: customers must purchase at least 40 ECI Datacenter per-processor licenses (likely to cost about US$150,000) or, if they prefer a mix of suites, a minimum of 100 EAP per-processor licenses of any type (Datacenter, Enterprise, or Standard). That puts the minimum entry point at about US$125,000.

Similarities, Differences

The ECI differs from the EAP in many respects, such as the following:

  • It does not automatically cover all of a particular type of server in an organization, so existing servers are not required to be added to the enrollment (although existing servers with SA can be added to it, using a new "Step-Over" license), and new servers can be purchased outside of it (e.g., through the Select volume licensing program or as an "additional product" in an Enterprise Agreement)
  • Other than a minimum number of licenses to start the program, customers are not required to project further growth in their server purchases, as they are in an EAP with a three-year true-up provision
  • Product support is available through the limited technical support benefits included with SA; customers will likely purchase additional support hours through a separate program such as Premier Support.

The ECI also waives the normal requirement to purchase separate management server licenses. Microsoft's server management products typically consist of agents that run on each managed computer and server products that communicate with the agents to collect data, alert IT staff in the event of abnormal events (such as a server running low on memory), and offer a console for centralized management and reporting. The servers and agents are usually licensed separately, but in the ECI the suites of management licenses also include licenses for any of the related management server products.

This could result in additional savings for customers, although management server licenses are relatively inexpensive (at a starting price of approximately US$577 in volume licensing) and many organizations may already have them in place to manage desktops or existing servers.

The ECI does not require immediate payment for additional new ECI suite products. Instead, any additional licenses that the customer requires are trued up at the next agreement anniversary, when the customer will pay for the licenses plus SA for half of the current year and for any full years remaining in the agreement.

Cost-Benefit Analysis Required

The new programs are clearly not for everyone. The EAP would appear to be best suited for two discrete sets of customers—those whose servers are outdated, for whom it could offer some long-term savings while reducing upfront costs, and those who are experiencing rapid growth and want predictable costs in the next few years. These two groups are unlikely to intersect—customers with many old servers are probably not high-growth firms, for example—and their analyses of the costs and benefits are likely to be different.

The economic lessons of the last year may also prompt some reservations about programs in which customers project higher growth and commit to ongoing payments for the next three years: a customer who had purchased an EAP in mid-2008 could find themselves in mid-2009 with a significant commitment to pay Microsoft for new licenses that were rendered unnecessary due to declining business conditions.

Software Asset Management Challenges

Because the EAP and ECI create so many exceptions to the way that licenses and upgrades are purchased and to the rights that come with licenses, they pose new challenges to organizations that want to track their licensing compliance with software asset management software. They may need to enter exceptions or use out-of-band manual processes to ensure that they accurately track their licensing liabilities into the future.

For example, organizations that use the EAP to upgrade outdated application platforms and then do not renew an enrollment after a true-up in the third year must distinguish between a license that has permanent upgrade rights (such as a licenses purchased during the EAP term) and a license that does not (e.g., an existing license to which SA was not attached until it was brought into the EAP). Since the software will likely all be the latest version, a manual count must be kept to ensure that only earlier licenses are retired and not those purchased during the EAP term.

The ECI could be even more challenging. Organizations that want to take advantage of virtualization rights and that use the Enterprise ECI suite must distinguish between Windows Server Enterprise licenses and System Management Suite Enterprise licenses that permit up to four VMs (purchased outside of the ECI) and those that permit only two VMs (purchased through the ECI). A customer who assigns two conventional Windows Server Enterprise licenses to a two-processor machine is entitled to run eight VMs on it; a customer who assigns two Enterprise ECI suite licenses to the same machine can run only four VMs. Automated management software, such as Microsoft's Virtual Machine Manager, has no way to detect the difference, since the actual server software is identical in both cases.

While waiving the requirement for management server licenses in the ECI is beneficial to customers, they must keep track of how many management servers they have installed under the "free management server" provisions of the ECI and any management servers that they purchased outside of the ECI. Their asset management products and processes will likely discover that they are running more management servers than they have licensed, but this may not mean that they are out of compliance.

Competitive Goals

The primary goals of the EAP and the ECI are to create bundles that respond to competitive pressure from other firms, notably Oracle and VMware.

The EAP is aimed at Oracle's Unlimited License Agreement and Oracle's growth as a business platform, aided by acquisitions of customer relationship management, human resources, project management, and ERP companies, some of which were major Microsoft partners (such as PeopleSoft and Siebel, the latter still used to run parts of Microsoft's business).

The ECI is aimed at virtualization leader VMware. Getting customers to use management license suites is critical here, because Windows Server is the most common OS used in VMs, but Microsoft gives away the virtualization platform (Hyper-V) for free. The company's strategy is to monetize virtualization through its management tools, since most customers are likely to assume that Microsoft's management tools are the best for managing Microsoft products running in VMs, and the management license suites provide a broad set of capabilities.

The company will be in a particularly good position to promote ECI in fall 2009, when Windows Server 2008 R2 and Virtual Machine Manager 2008 R2 add significant new capabilities to the company's virtualization platform, presenting an opportune moment to sell a suite of Microsoft virtualization products.

Resources

Application Platform Agreements were described in more detail in "Agreement Licenses Servers Enterprisewide" on page 21 of the Feb. 2009 Update.

Premier Ultimate is described in "New Focus on Proactive Support" on page 36 of the Oct. 2008 Update.