Expert: New Microsoft Enterprise Licensing Program Could Raise Costs

Microsoft is preparing to introduce a new enterprise software licensing program next month that could amount to a significant price hike for some customers, according to some licensing consultants.

Microsoft's Server and Cloud Enrollment (SCE), a new three-year licensing commitment under its Enterprise Agreement, goes into effect Nov. 10. The SCE is replacing two existing Enterprise Agreement programs, the Enrollment for Application Platform (EAP) and Enrollment for Core Infrastructure (ECI), which are being retired.

EAP covers Microsoft SQL Server, Visual Studio, SharePoint and BizTalk. EAP customers have been getting 40 percent discounts on licensing and Software Assurance for the premium versions of these apps, but under SCE, those discounts will drop to 15 percent, Jeff Muscarella, partner at NPI, an Atlanta-based firm that helps companies manage software licensing, told CRN.

[Related: As Microsoft Marches Into Cloud, Its Already Complex Licensing Gets Even More Baffling ]

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It's a similar situation for ECI, which covers Windows Server and System Center. Customers that have been getting 20 percent discounts for licensing and Software Assurance will see those drop to 15 percent under the SCE program, Muscarella said in an interview.

Microsoft's Windows Server licensing requirements also are changing under SCE. ECI has a minimum commitment of 25 licenses, while SCE requires Microsoft customers to cover all of their Windows Servers, Muscarella said.

Microsoft didn't respond to a request for comment on whether the SCE could result in higher costs for customers.

But in an SCE document published earlier this month, Microsoft lists other benefits to SCE, including a 5 percent discount on Software Assurance renewals and unlimited support.

Still, the new SCE licensing terms may not go over well with customers that are still reeling from recent Microsoft price hikes.

Microsoft, Redmond, Wash., in August revealed a 28 percent price increase for Windows Server 2012 R2 Data Center Edition, which can run an unlimited number of virtual machines. Microsoft also has raised SQL Server client access license (CAL) pricing by roughly 25 percent and SharePoint Server costs by 38 percent.

Microsoft created the SCE in response to more customers running its software virtually on powerful server hardware, Muscarella told CRN.

"Customers are getting more bang for their buck due to increases in hardware performance, and they're buying fewer licenses as a result," Muscarella said in an interview. "Microsoft is telling customers SCE is going to be cheaper than ECI and EAP, but for large clients, it's probably going to cost more."

SCE and previous Microsoft volume licensing programs have a common theme of trying to get customers to upgrade older Microsoft products, but some are reluctant to do so, Paul DeGroot, principal analyst at Pica Communications, a Microsoft licensing consultancy in Camano Island, Wash., told CRN.

"Many of our customers have servers running industrial processes of some kind or custom applications, and upgrading those servers carries a high probability of breaking something," DeGroot said in an email. "Or maybe they could be upgraded, but they're running fine and they don't float to the top of the budget priorities."

NEXT: Microsoft Dangling SCE As An Azure Carrot

Higher costs aren't the only issue with SCE. For enterprises, understanding the licensing changes SCE entails, and figuring out which of its options are the best fit, can be a difficult and time-consuming process, Muscarella told CRN.

"In moving Windows Server, System Center, SharePoint and other products into SCE, there are transition issues involved that are going to be very complex," Muscarella said.

Microsoft also is using SCE as a carrot to lure customers to the Windows Azure public cloud.

SCE includes core infrastructure, application platform and developer platform components, and customers that choose any of these three will get the "best Azure prices based on their infrastructure spend," a Microsoft spokesperson said in an email.

These prices will be "significantly lower" than what Amazon Web Services charges for cloud servers, storage and bandwidth, the spokesperson added.

In the old EA model for Azure, customers had to predict how much capacity they'd be using and pay for it up front in order to get volume discounts. If they went over, they had to pay the full price for Azure capacity, as opposed to the discounted EA rate.

Because there hasn't been a way to track how much capacity they were using, deploying additional virtual machines and importing data was a risky proposition for customers, Tim Hegedus, senior analyst at Miro Consulting, Woodbridge, N.J.-based licensing consultancy, told CRN.

"Microsoft doesn't want to interfere with your ability to run your business, so they have no hard and fast limits," Hegedus said in an interview. "But if you do exceed your limit, you have to pay."

That's one of the big changes with SCE: Customers that go over their commitment will still get the discounted EA rate for Azure capacity. Microsoft also is giving customers new tools for tracking how much Azure capacity they've consumed, and will send automatic notifications when customers approach key usage thresholds.

In a press conference in San Francisco Monday, Microsoft Server and Tools chief Satya Nadella described the new EA terms as a "fantastic" way for enterprises to tap into Azure capacity for backup and disaster recovery for private clouds.

Muscarella sees the Azure discounts as an example of Microsoft's typical strategy for getting products established in enterprises in order to build market share. Microsoft is "almost giving away Azure to customers" in the SCE, he said.

However, Muscarella said the lower discounts customers will be getting from SCE will negate any cost savings customers see from the Azure discounts.

Customers that haven't recently renewed their ECI and EAP have until Nov. 9 to do so before the new SCE terms take effect. Muscarella is advising his customers to renew or risk paying as much as 40 percent more for Microsoft enterprise software in 2014.