By Paul DeGroot [bio]
Posted: Oct. 22, 2007

The following is the full text of an article published by Directions on Microsoft, an independent research firm focused exclusively on Microsoft strategy & technology. More samples of our content, as well as a list of upcoming articles and reports are also available.

A change in Microsoft's licensing models will raise prices for Microsoft's management tools in organizations that use virtualization technologies. The company is moving from a model in which its OS, application, and backup management utilities were licensed per device; instead, it will license them per operating system environment (OSE). The change gives Microsoft a way to monetize the trend toward virtual machines even though its virtual machine management software trails the market leaders. However, customers may balk at higher prices.

From Device to OSE

Until now, Microsoft's management licenses—required for any software, including the OS, that is managed by a product such as Operations Manager or Systems Management Server (SMS)—were licensed per device: the Product Use Rights (PUR) said, "You must acquire and assign a management license to each device that your instances of the server software manage." With the Oct. 2007 edition of the PUR, however, the relevant language says, "At any one time, the number of OSEs being managed on a device may not exceed the number of OSE client or server management licenses assigned to that device." The PUR notes that each OSE can run on either a physical device or a virtual machine (VM).

The difference between licensing devices and licensing OSEs is especially significant for customers who use virtualization software. For example, where a single Systems Management Server (SMS) Server Management License conferred the right to manage all OSEs, physical and virtual, running on one server, customers will in the future require a separate management license for each OSE on the server. This will have a big impact on organizations that have consolidated servers by running multiple VMs on a single physical server (although they can reduce the impact somewhat by reassigning management licenses from unused servers to VMs on consolidated servers).

The new rules do not immediately affect current customers or licenses. For volume customers, the PUR in effect at the time they purchase a license are the rules that apply to that license. This means that customers who already own management licenses can continue to use them on a per-device basis. Customers who have purchased Software Assurance (SA) maintenance coverage can also upgrade to new versions of management server licenses, but when their current SA expires and they renew it, the rights that will apply to their licenses are the rights in place at the time of renewal. Thus, a license that once applied to an entire device could be limited to a single OSE after the customer renews. This adds an interesting twist to the concept of an "upgrade"—renewing SA on a product actually removes some of the customer's existing rights.

Customers do gain some functionality—desired configuration management for basic OS functions—when they step up to the Standard ML, but not all customers may find that sufficient compensation for the much higher prices they will need to pay to manage each OSE separately, with a higher-priced ML.

As is frequently the case with Microsoft product licensing, some exceptions apply. For example, since the Configuration Manager 2007 client management license will become part of the Core Client Access License (CAL) (replacing the current Systems Management Server management license that is part of that bundle of common CALs), and the Core CAL can be licensed per device or per user, customers with the Core CAL can use the Configuration Manager 2007 client management license per device or per user. However, the impact there will be minimal, since the Core CAL includes a management license only for a client PC, and not for a server, and running multiple OSEs on PC clients is rare.

Monetizing Virtualization

Since the change in the management license model will have its greatest impact on server virtualization, it appears to be a move to generate more revenue from virtualization, a fast-growing market in which Microsoft trails.

Although the resulting cost increases are significant, Microsoft may not lose many customers as a result. Its server management tools are popular and logical choices for managing Microsoft software, even on competing virtualization platforms, such as those from VMware or Xen. Customers do have non-Microsoft alternatives for managing virtual machines, but products like VMware's VirtualCenter provide only one facet in a much larger management picture—they manage the VMs themselves, but do not manage OS and applications in those VMs. As a result, customers who today depend on Microsoft's management products to manage Microsoft OSs and applications running in VMs may be reluctant to switch to an alternative or reduce the level of management they require.

Microsoft says that even with the higher prices its configuration management products compare favorably with competitive offerings.

Furthermore, management licenses are usually a relatively small part of the total software licensing cost for a server that is running multiple copies of Windows Server, SQL Server, or Exchange, not to mention non-Microsoft applications such as Oracle or SAP. Thus, Microsoft may be able to raise the prices of its management products significantly without losing much market share.

Resources

Product Use Rights, including descriptions of different types of management workloads and the use of OSEs, can be downloaded from a link at www.microsoft.com/licensing.

Licensing of Configuration Manager 2007 is outlined in "Configuration Manager Licenses More Costly, Restrictive" in the Nov. 2007 Update.

Licensing of Operations Manager 2007 is detailed in "Operations Manager 2007 Packaging, Licensing, Pricing" on page 22 of the June 2007 Update.

Virtual Machine Manager is described in more detail in "Virtual Machine Manager Virtually Here" in the Nov. 2007 Update.

Directions on Microsoft is seeking a developer platforms guru to join our team of computing technology experts. Click here for details.