• Chart: Standard and Enterprise CALs

A second layer of Enterprise Client Access Licenses (CALs) for many server applications has further complicated Microsoft's licensing model. To make managing CALs easier, Microsoft has introduced an Enterprise CAL Suite, which includes both enterprise and standard CALs for these and other servers. Although the Enterprise CAL Suite will cost twice as much as the current Core CAL Suite, Microsoft will market it to enterprises as a cost-saving measure, since buying the suite will cost much less than buying its component CALs separately.

New Features Require Enterprise CALs

CALs augment many Microsoft server licenses. A customer who installs a server that requires CALs must purchase a CAL for each user or device that accesses the server. For example, each user of Exchange must have a CAL for Exchange and a CAL for Windows Server, on which Exchange runs. A CAL must match the server product's version (e.g., an Exchange Server 2007 CAL is required to access Exchange Server 2007), but a single CAL can be used to access multiple instances of a server. For example, a single Windows Server CAL gives a user the right to access any Windows Server (of the same or a lower version as the CAL) within an organization.

CALs are not software. Although organizations may want to record the assignment of a CAL to a particular computer, CALs cannot be "installed" on computers, nor can a computer be inspected to determine which CALs have been assigned to it.

Before Microsoft launched its 2007 series of servers, customers who purchased a new server version were entitled to use all of its features as long as they had a CAL for the server. The 2007 versions of Exchange, SharePoint, and the upcoming Office Communications Server, however, all require new Enterprise CALs in addition to Standard CALs (the new name for what were previously simply CALs) for full server functionality. For example, users with Standard CALs can use common Exchange Server 2007 features such as e-mail, but only those with Exchange Server 2007 Enterprise CALs are licensed to use the new unified messaging functionality, which stores voice mail, faxes, and e-mail in a user's Exchange mailbox.

The Enterprise CAL Suite

Managing a mixture of Standard and Enterprise CALs on an ad hoc basis will be difficult. That's because Microsoft servers currently expose all features to all users, regardless of which features they're actually licensed to use. For instance, if SharePoint Server 2007 is installed with Excel Services enabled, any user of the server, regardless of the CAL assigned to them, will have access to Excel services (spreadsheets that run on the server). To avoid such complications, organizations will find it easier, albeit more expensive, to purchase Enterprise CALs for everyone in their organization.

Many organizations already purchase the Core CAL Suite (formerly known as simply the Core CAL), which includes CALs for Exchange, SharePoint Server, Systems Management Server, and Windows Server. The Core CAL Suite, available in the Select and Enterprise Agreement volume licensing programs, also includes upgrade rights (through Microsoft's Software Assurance program), and while it provides only a modest discount off the price of purchasing its component CALs separately, it removes a licensing management hassle. Because CAL versions must match server versions, any time an organization upgrades any of the servers, it must also upgrade all corresponding CALs. The upgrade rights built into the price of the Core CAL Suite eliminate that requirement for the common CALs that it covers.

Microsoft has expanded on the Core CAL Suite's design by introducing an Enterprise CAL Suite that includes the Core CAL Suite, plus seven other CALs. The additional CALs (not all of which are Enterprise CALs, and some of which have been available previously, but not as part of a CAL suite) include the following:

• Exchange Server Enterprise CAL
• Forefront Client Security Suite
• Office Communications Server Standard CAL
• Office Communications Server 2007 Enterprise CAL
• SharePoint Server Enterprise CAL
• System Center Operations Manager (formerly Microsoft Operations Manager) Client Operations Management License
• System Center Configuration Manager (formerly Systems Management Server) Client Management License
• Windows Server 2003 Rights Management Services CAL

(For a list of which features are licensed with each type of CAL, and their pricing, see the chart "Standard and Enterprise CALs".)

Some customers may object to the suite's design and price because they don't need all 11 CALs. For example, the costly System Center Operations Manager Client Operations Management License is intended mainly for unattended computers, such as kiosks, and this CAL will go largely unused in most organizations, even if they get it, through the Enterprise CAL suite, for every PC they own. To sweeten the offering and deal with such objections, Microsoft has adopted a more aggressive pricing strategy for the Enterprise CAL Suite than it has for the Core CAL Suite—when purchased in the Enterprise CAL Suite, the seven additional CALs are discounted a total of 54%.

However, the Enterprise CAL Suite still costs twice as much as the Core CAL Suite. The Core CAL Suite costs about US$58 to US$115 a year, depending on customer size and volume agreement; the Enterprise CAL Suite will cost about US$105 to US$229 a year.

Step-ups for Current Customers

Customers who already license the Core CAL Suite are eligible for a step-up license, in which they pay the difference (which will range from about US$58 to US$115) between the Core CAL Suite and the Enterprise CAL Suite, as well as the difference in price for upgrade rights.

Microsoft will also give customers credit for individual Enterprise CALs that they already own when they upgrade to the Enterprise CAL Suite. A customer who buys the Exchange Enterprise CAL today, and a year from now upgrades to the entire Enterprise CAL Suite, will be credited with the Exchange Enterprise CAL's portion of the Enterprise CAL Suite's cost.

Not all components of the Enterprise CAL Suite are available yet. For example, Office Communications Server (OCS) 2007 has not yet been released, but the OCS 2007 Enterprise CAL is part of the Enterprise CAL Suite. Microsoft has no plans to adjust the price of the Enterprise CAL Suite for early adopters, however—they will pay for the CAL even though they won't be able to use it immediately.

More Complex Licensing

Enterprise CALs and the Enterprise CAL Suite will make licensing either more expensive, more complicated, or both for customers who want the new features restricted to those CALs.

One source of complexity is that while the Enterprise CAL Suite is a superset of the Core CAL Suite, and thus customers need purchase only one or the other, individual Enterprise CALs are not supersets of Standard CALs. Customers who want Enterprise CAL features must also purchase Standard CALs. Customers must also pay close attention to price sheets, because Enterprise CAL prices are not a standard proportion of Standard CAL prices—the Exchange Enterprise CAL is slightly less expensive than Exchange's Standard CAL, while the OCS Enterprise CAL is more than three times the price of the OCS Standard CAL.

To minimize this and other sources of confusion, customers who decide that they want to roll out Enterprise CAL features selectively should carefully segment the users (e.g., by business division, geography, or job role) who will use Enterprise CAL features.

Organizations that can't or don't want to track CAL assignments carefully, or that want to roll out most Enterprise CAL features to most of their users, will in many cases be better off with the Enterprise CAL Suite, which can be purchased either in Select or Enterprise Agreements (EAs), but those customers should budget for substantially higher payments for CALs.

EA More Complex

Another impact of Microsoft's 2007 product rollouts, including the Enterprise CAL Suite, will be more complicated decisions for EA customers.

In the past, the core EA licenses were limited to three choices—the Windows OS upgrade, a premium Office bundle, and the Core CAL Suite—and customers received a 15% discount if they bought all three. The annual Microsoft desktop licensing bill could be calculated quite simply by multiplying the per-desktop cost of these choices by the number of computers in the organization.

In the future, these customers will have five choices—the original three, plus a second version of Office 2007 (Office 2007 Enterprise Edition) and the Enterprise CAL Suite.

Licensing complexity does not necessarily bother Microsoft: the company knows that many customers, seeking a remedy for licensing complexity, simply buy the premium package for all of their computers, regardless of whether they actually need it on every computer. Aside from its positive impact on Microsoft's bottom line, this assures customers that any of their users can use any version of desktop and server software covered by their Enterprise Agreement—any version of Office, any desktop OS, and any version of the servers whose CALs are part of the Enterprise CAL Suite—without needing to count licenses or usage and worry about license compliance.

Marketing the Suite

Microsoft's main pitch for the Enterprise CAL Suite will be the savings it represents over the price of component CALs. The company says that a large customer with the best volume discounts that currently uses the Core CAL Suite will pay only about 15% of the cost of purchasing the CALs individually if they step up for the Core CAL. Although the notion that a company would purchase all of these CALs individually is not plausible—very few companies need to use all these CALs on every client computer, and any that did would get substantial discounts through other means—the number is a good teaser for sales of the Enterprise CAL Suite.

Microsoft is also putting together special financing offers for companies that want to make the shift to the Enterprise CAL Suite. They may be able to pay less in the early phases of adoption of new server products, paying the full price only after the upgrade migration is complete.

Future Licensing Directions

The Enterprise CAL Suite's design hints at other changes to Microsoft licensing, but raises questions about how far the company will depart from long-accepted practices. In particular, the Enterprise CAL Suite challenges customer expectations of how they pay for new server features and removes some of the key arguments for the company's Software Assurance (SA) upgrade-rights plan.

Accessing new server features. The Enterprise CAL Suite will be broadly positioned by Microsoft's sales force as enabling enterprise customers to gain access to numerous new features, such as unified messaging, on-premise Web conferencing (in OCS 2007), and integration with data stored in corporate applications (via SharePoint Server).

Microsoft says that Enterprise CALs give customers more flexibility, since not all customers may not use the new features, and therefore may not want to pay for them. That problem was solved in the past in a different way, however: new features were added to servers without dramatic increases in price, and Microsoft realized additional revenue for the new features when customers paid for upgrades.

Now, however, customers will get fewer new features by upgrading only their existing server licenses and CALs. Major new features require a new layer of CALs, which are far more profitable for Microsoft than server licenses. For example, about 80% of the company's Exchange revenue is estimated to come from Exchange CALs. Thus, adding a new layer of CALs will sharply increase Microsoft's revenue stream and customers' costs.

Which new features should be part of an Enterprise CAL also appears to be arbitrary. For example, SharePoint Server 2007 has absorbed the feature set of Content Management Server (CMS), previously one of Microsoft's most expensive servers. Yet this change had little impact on the cost of SharePoint—server license prices have risen 10%, and all CMS features can be accessed with the SharePoint Server 2007 Standard CAL, whose price has risen 30%. These price increases presumably reflect the addition of other new features, such as integration between SharePoint and ERP data, as well. On the other hand, when on-premise Web conferencing (based on Live Meeting technology) is added to OCS 2007, that feature alone will trigger the need for a new Enterprise CAL that may cost three times as much as the Standard CAL. (Final pricing for the OCS Enterprise CAL has not been announced.)

Finally, if a new layer of CALs is the way that Microsoft will monetize new server features in the future, the company should clarify its longer term plans. For example, will new features in the next version of Exchange require a third layer of CALs (to create a new revenue stream for Microsoft and provide customers with yet more "options")? Or will today's Enterprise CAL features become part of tomorrow's Standard CAL, to make room for new features in the next Enterprise CAL (which will generate upgrade revenue for Microsoft but not a new revenue stream)?

What Software Assurance means today. Since it introduced SA in 2001, Microsoft has positioned these license upgrade rights as the best way for customers to "stay current." Much of the company's marketing around SA emphasizes that it assures them of rights to use the latest Microsoft technology. SA is also positioned as a way to remove budget uncertainty around IT: by paying predictable annual fees for upgrade rights, SA customers will not face new and unforeseen expenses when they want to upgrade.

However, by adding a new layer of CALs to which current SA customers are not entitled, Microsoft sidesteps these commitments—no customer is entitled to fully utilize the latest Microsoft technology unless they incur an unexpected additional fee for the enterprise CALs that unlock much of the new functionality.

The company has indicated that it may add more CALs to the Enterprise CAL Suite as new products emerge, which suggests that more Enterprise CALs are on the way. Customers who purchase SA today should not assume that their SA payments will keep them current or that they are shielded from unpredictable future costs, as Microsoft adds premium features for which it will charge premium prices.

Resources

Enterprise CALs were described in "Client Access Licenses Split Server Features" on page 3 of the Mar. 2006 Update.

Future Microsoft server products and estimated release dates are covered in the Sept. 2006 Directions on Microsoft "Enterprise Software Roadmap."