The Insider’s Guide to Microsoft Licensing

March 1, 2012   //   News

It may be complex, but Microsoft licensing is not rocket science. It simply requires attention to detail and practice. Here’s your guide.

If ever a topic could temp VARs to play King Lear and put out their eyes, surely it would be volume licensing, with its seemingly endless parade of legalese and forms, pricing schedules to juggle, and options to wade through.

Yet licensing is something that can’t be ignored, especially when the vendor is Microsoft and the products ubiquitous. An optimum licensing approach can save a client money, ensure an expeditious path to upgrades, deliver training and support, offer a smoother transition to cloud computing , and avoid significant legal penalties. In the process, the channel professional gains that coveted role as trusted advisor. Unfortunately, Microsoft licensing is complex, with multiple programs and products differing by requirements. No simple decision chart points up what would best serve a client. Then again, that means there’s room for a channel pro to offer assistance.

“Everything stems from the solution. There’s a balancing act between the features a client inherently wants and what they’re given with the licensing they have.”
Elliott Baretz, Vice President Business Development, SWC Technology Partner’s Inc.

GETTING HELP

Microsoft has “always gotten a bad rap for having complexity in their licenses,” says Paul Edwards, director of research at IT advisory firm Info-Tech Research Group. “You always have different size organizations, different commitment levels, different usage. To accommodate all that, you can’t avoid certain degrees of complexity.”

Complexity creates opportunities for the channel. Info-Tech surveyed companies to find out how they prepared for license renewal negotiations. “Half the companies surveyed did not spend much time or effort preparing for the renewal of the contract,” Edwards says. SMBs tend to depend on channel providers to guide them through the forest of details.

But the complexity is often overstated. Yes, licensing can be complicated—Microsoft’s information spans “thousands of Web pages,” according to Tim Hegedus, senior analyst at Woodbridge, N.J.-based licensing consultancy Miro Consulting—but it isn’t rocket science. It just demands attention to detail and practice. Or some help.

Partnering with a Microsoft large-account reseller (LAR) can add intricate knowledge that would be otherwise difficult to obtain. “Their role in life is to help decompose the Enterprise Agreements and trans¬late them into practical language that a client can work with,” says Elliott Baretz, vice president of business development at Oakbrook, Ill.-based technology consultancy SWC Technology Partners Inc. “It’s complex enough that you wouldn’t want to put the cycles into it if you weren’t going to financially benefit from understanding that.”

LARs are also the only third parties that can sell the volume agreements. But it takes research to find a LAR that operates in your market and that won’t burn you. There are law firms that have experience in reviewing and negotiating Microsoft volume licenses and consultancies that specialize in software licensing.

BASIC BREAKDOWN

Even if you won’t become an expert on the finer aspects of Microsoft licensing, developing a good level of understanding is wise. At a high level, all the different product licensing approaches the company uses are a combination of two factors: a server metric and a measure of how many employees use the software (the client access license, or CAL). Microsoft’s intent is to measure the value the software offers a company and then charge proportionately.

“The server metric gets at use-intensity measurement,” says Amy Konary, research vice president for software licensing and provisioning at IDC. “Depending on how big the server is, the software can run faster and you can do more with it in the same amount of time. The CAL measurement is the breadth of use—how spread it is in the organization.”

There are two types of CAL. One counts the number of individual users while the other looks at client machines. Depending on whether there are a greater number of users or devices, one or the other might be more advantageous.

The combination of metrics creates some of the complexity, Konary says, because a company has to track two measurements. The degree that both factors play can differ, depending on the offering.

Licensing for Office 365, a Microsoft cloud-based product, is done per user, based on the product access the company has. According to Hegedus, Microsoft SQL Server 2012 is moving to licensing based on the number of CPU cores, so a company that uses the per-processor li¬cense doesn’t need CAL licenses. However, the Windows Server group still requires both server and CAL licenses.

There are a number of potential licensing programs, according to John Cullen, vice president of research in licensing and sales channels at research firm Directions on Microsoft. An Enterprise Agreement (EA) is intended for companies with 250 or more PCs that want to standardize on Microsoft products, and at the best discounting tier, offers the lowest prices on software. EAs include Software Assurance, which provides help in deployment planning, support, training, and new versions of software as they come out.

Last year, Microsoft made a major change in its Select licensing, ending sales of new Select agreements and introducing Select Plus. Although companies can still renew existing Select plans under the terms of the agreement, considering a change to Select Plus could make sense. The discount levels are the same, but managing licenses can be easier. “There is an annual assessment, but it works far differently [than with Select],” says Hegedus. “If you have many different groups purchasing the software, they all add up to accumulate points that ultimately push you to a new price tier and give you additional discounts.”

According to Microsoft, there are no contractual forecasts as there were under the old Select program, and the split of purchasing into three pools for calculating discounts—applications, systems, and servers—remains. Both Select Plus and Select allow a la carte purchasing and don’t require a company to standardize on Microsoft products.

However, one significant change, at least, decreases licensing flexibility. Under a Select agreement, a company could buy a single year of Software Assurance and then renew it. Select Plus allows only a three-year SA term. The specifics of a client might make Select a bet¬ter choice. But that’s only so long as it lasts. Hegedus thinks that by 2014, Microsoft will completely phase out Select, leaving Select Plus as the only choice.

Then there are the Open License and Open Value programs, which are designed for smaller organizations. A minimum purchase can be as little as five users and $200. The agreements are also much shorter, running a few pages compared with the 15-page Select Plus or Enterprise Agreement contracts and additional other documents the client must sign, according to Cullen.

The complexities also give companies choices that can offer better or worse deals. Between types of products, servers, numbers of users, technical roadmaps, expected client growth, and client upgrade plans, companies have to balance the software and privileges they want with what licenses provide.

For example, an Open Value agreement with the company-wide option can sometimes offer a better choice than an Enterprise Agreement to a business with a few hundred PCs. “Open Value Company Wide provides three licensing options unavailable in a standard EA that can reduce the potential for over-licensing,” Cullen says. Over-licensing is when a company purchases more software licenses than it needs.

“[Microsoft’s] server metric gets at use-intensity measurement. Depending on how big the server is, the software can run faster and you can do more with it in the same amount of time.” – Amy Konary, Research VP, Software Licensing and Provisioning, IDC

MS LICENSING AND VIRTUALIZATION

One of the biggest issues in corporate computing is virtualization. At one time that meant an enterprise with thousands of servers, but hardware vendors are now trying to push the concept into the SMB market. As companies virtualize, they can throw their Microsoft licensing situation into confusion.

The problem is that the virtual machine running an application or database could run on any physical machine. What if a package suddenly shifts from a 32-bit server with 64GB of RAM to a 64-bit box with hundreds of gigabytes of memory? The company might suddenly be out of license compliance.

A channel professional should pay careful attention to the server metric on any volume agreement if the client virtualizes its infrastructure or runs a private cloud. “Even licenses two or three years ago didn’t take into account this will be running in one of these environments,” says Amy Konary, research vice president for software licensing and provisioning at IDC. The good news is that she says Microsoft is on the “front of the curve” in trying to address the situation, and has started to change licensing to allow virtualization without pinning it to a given physical server, undercutting the advantages of the virtualization.

For example, Microsoft SQL Server 2012 has licensing that is friendlier to customers who eventually want to move to a hosting environment or virtualization. When such variations exist, they are more expensive. For now, expect that a company will need to negotiate reasonable compliance terms.

DANGERS OF NON-COMPLIANCE

Licensing can be taxing and even dull, but the type of excitement that VARs and their customers can experience from being under-licensed is not something to embrace. when a company lacks the licensing to cover all of its uses of software, whether the type or degree of usage, it faces two potential legal issues, according to Jonathan Ezor, director of the Institute for Business, Law and Technology at Touro Law Center, Touro College, in Central Islip, N.Y.

The lesser problem is breach of contract. Esor notes that any software license is a contract between the end-user company and the vendor. Being over-licensed–when a company has the contractual right to make more use of an application than it does in practice–may be a waste of money, but it is legal. However, being under-licensed would at least represent a breach of contract. For example, a company might have licenses for 275 employees to use Office but actually have 300 employees on the software.

The bigger danger to the end-user company is that the vendor might claim copyright infringement, even if the user company were unaware of the situation. “The law is very stringent,” Ezor says. “There can be significant financial penalties.”

According to the United States copyright law, the rights owner can seek statutory damages of $750 to $30,000 per instance of infringement. If the rights owner can show that the infringement was willful, statutory damages can rise to as much as $150,000 per instance. If a company has 25 unlicensed copies of software, that could mean a total of $18,750 to $750,000 for infringement, or as much as $3.75 million if it were willful. “There are also criminal penalties,” that could conceivably come into play, says Ezor.

The channel pro could face the same penalties, according to Robert Scott, managing partner of Southlake, Texas-based technology law firm Scott & Scott. “Who is responsible legally is an issue,” he says. In addition, a VAR, integrator, or reseller could face a professional liability claim. “If its not clear in the VAR’s agreement with the client that the VAR isn’t responsible for licensing, the customer could sue for negligence, “ Scott says. “It’s not the type of thing you want to just dabble with or place orders for a customer as a favor.”

Between disgruntled employees tipping off either Microsoft of the Business Software Alliance to unlicensed use, and software increasingly calling home to activate or update, chances are greater of unlicensed use coming to the surface. And actively trying to find more instances might be in the plans of the software giant. “I think you might see Microsoft, through its partners, maybe paying more attention to software asset management,” says John Cullen, vice president of research in licensing and sales channels at research firm Directions on Microsoft.

“Open Value Company Wide provides three licensing options unavailable in a standard EA that can reduce the potential for over-licensing.” – John Cullen, VP Research, Licensing and Sales Channels, Directions on Microsoft

“Everything stems from the solution,” says Baretz. “There’s a balancing act between the features a client inherently wants and what they’re given with the licensing they have.” Channel partners should ensure that clients have the licensing necessary for a given solution.

Product license bundles can also force companies to take more soft¬ware than they want to get what they need, so volume licensing now becomes a critical part of determining a solution’s total cost of ownership. Then again, licensing a larger package of products can sometimes pay off by reducing other technology expenses. A company that licenses Microsoft’s communication package Lync would have some extensive communications capabilities that wouldn’t require an additional investment.

FIND WHAT MAKES SENSE

Channel partners should also remember that Microsoft’s own guide¬lines on when to use a particular type of license do not always provide the best advice. The company may have designed its Enterprise Agreements for a minimum of 250 users, but there are no hard and fast numbers in smart licensing. Over-licensing might cover expected hiring, access to new product versions, and increased discount levels that make it cheaper in the long run. “The [over-licensing] ballpark tends to be about 200 [seats],” says Baretz. “That’s when the financial rationalization tends to make sense.”

In addition, companies must consider Software Assurance. It might make sense for a client that wants to upgrade to new versions of software that are due in the next year or two, or needs additional help in training or support. But if a new release is further out or the company is well experienced with the software, SA may be unwarranted.

Then there’s the cloud. The ease of adding or dropping users can make Office 365 appealing to certain types of clients. Others that are more stable in size would likely feel a financial penalty. And moving licensing from on-premises to cloud isn’t straightforward.

“Microsoft has done a good job communicating license mobility to customers, but that’s it,” says Mitch Guerra, senior cloud licensing manager at Los Angeles-based cloud service provider dinCloud Inc. According to Guerra, Microsoft is very restrictive about moving from traditional on-premises software licenses to hosted versions of the same software. “There are only four or five product licenses you can move into a service provider license from a perpetual license,” he says.

A move to Microsoft cloud services will also require particular versions of Windows with more complications. Windows 7 Pro with active SA is compatible with the licensing. Without SA, a company running Windows 7 Pro would need Microsoft Virtual Desktop Access. Windows Vista must be the Business version and have SA. Windows XP needs to be Pro with SA. So the VAR or integrator must know whether the client has plans to migrate to cloud operations to help determine the type of licensing that will be needed. Hybrid operations between cloud and on-premises deployment get even trickier.

Any engagement will likely need a full audit to understand the client’s current software and licensing state. “Often, the customers don’t know what they have, who uses it, and where they want to go,” says James Alexander, senior vice president at Info-Tech. The company might already have Microsoft software licenses and even entire products not being used.

But for all the time and complexity, volume licensing can also be an invaluable chance for a channel professional to develop a closer relationship with clients, all while finding additional revenue opportunities. Think of it as a license to thrill your bottom line.

KEY TAKEAWAYS

  • LOOK AT ALL LICENSING PROGRAMS to find the best fit for a particular company
  • AUDIT THE CLIENT’S CURRENT LICENSING and product use before any new license agreement
  • PARTNER WITH LARS OR OTHER EXPERTS for specialized help in more complex situations
  • LICENSING CAN WREAK HAVOC with virtualization plans
  • A MOVE TO CLOUD COMPUTING requires particular licensing for migration

FOR MORE INFORMATION

  • MICROSOFT VOLUME LICENSING Extensive information about Microsoft’s volume licensing programs www.microsoft.com/licensing/default.aspx
  • MICROSOFT VOLUME LICENSING SERVICE CENTER Part of Microsoft’s Partner Network, this site provides an online tool for managing volume licensing agreements, downloading software and gaining access to volume license keys
  • UNITED STATES COPYRIGHT OFFICE A primary resource for understanding copyright, the law and penalties for infringing copyright www.copyright.gov

Erik Sherman is an independent journalist and consultant in western Massachusetts.

This article, “The Insider’s Guide to Microsoft Licensing,” originally appeared in the March 2012 edition of ChannelPro Magazine.