Microsoft is changing the rules, and it will affect you
Microsoft has announced significant upcoming updates to their Cloud and licensing terms and conditions via a blog post by Brad Smith, President and Vice-Chair.
Although the blog post is addressed to European Cloud Providers, Microsoft later confirmed that the most significant changes to licensing will be worldwide, so I would not dismiss the news if I were living outside Europe.
The changes will affect everyone: Cloud providers and their clients.
In this article, we will not discuss why it is happening. Microsoft has compelling reasons. Instead, we'll concentrate on the outcomes: what is good, what is terrible, what is to be expected, and what you should start doing today to prepare for the upcoming changes.
Of course, the original blog post is unclear on many essential details. Until we see the updated Product Terms and the amended Microsoft Partner Agreement, we will have to infer from the declaration of intent and make our assumptions.
(you may wish to watch this video on the same subject)
What is changing in Microsoft licensing for end clients?
(please scroll further down if you are a Cloud provider)
Windows 11 and Office 365 updates
Update: this change was successfully implemented in October 2022. QMTH is no longer required.
You may host your Windows 11 virtual machines and Office 365 applications with some Cloud providers. However, you must check if a provider already authorised for Microsoft SPLA also has QMTH authorisation. If they are not on the QMTH provider list, they are forbidden to host these applications for you.
How it works now:
Procure Windows 11, M365 or Office 365 licenses. IMPORTANT: pay attention if the licenses you buy are permitted to be deployed on Cloud providers. Not every license or product has the necessary permissions.
Your Cloud provider, upon your request, deploys it for you, or you install the applications on your own. For 100% compliance, you should notify your provider of every installation you perform yourselves.
What is expected to change?
More European Cloud providers may be authorised to host Windows 11 and Office 365 applications. It is unclear if all European providers will be granted these rights. It is also unclear whether Microsoft will waive the QMTH requirement in Europe or worldwide.
Instead of buying licences first, you will be able to procure a bundled Hosted Desktop solution directly from Cloud providers. It is unclear how this will be billed and whether you will effectively be sold the same licenses, albeit indirectly.
Clients of Cloud providers outside of Europe might have to stick to the current rules. That is to be seen.
Office Professional Plus and Office Standard updates
Update: this change was successfully implemented in October 2022. All subscription licences and licenses with SA may be used in BYOL scenarios.
If you wish to install these "traditional" Microsoft Office packages in a Public Cloud environment, you may not reuse the licences you already bought. That is expected to change.
How it works now:
Your Cloud provider bills you for Office applications per authorised user on a monthly pay-as-you-go basis.
The announced change:
Instead of paying per month, you will be able to bring your existing licences for Office Professional Plus and Office Standard if they have active Software Assurance.
It is not yet clear how compliance will be verified and enforced. Licensing experts have expressed reasonable doubts about the manageability of such scenarios.
Windows Server Standard and Windows Server Datacenter updates
Update: this change was successfully implemented in October 2022. Windows Server BYOL is permitted.
The announced update to Windows Server licensing is one of the most significant changes in Microsoft Licensing in years. Windows Server has never had the "Bring-Your-Own-License" rights in the Cloud, except for Azure.
Many end clients and Cloud providers complained that Azure has an unfair, anti-trust and anti-competition advantage.
What is changing for Windows Server?
Microsoft has announced that clients will be able to take their Windows Server licences with active Software Assurance to European Cloud providers' multi-tenant (public Cloud) environments using the same rules as for Azure.
For many, it may be a game-changer. When the changes are implemented, you will not be restricted to Azure if you need to reduce the cost of your Cloud migration.
How it works now:
Windows Server in Public Cloud is a pay-as-you-go (OPEX) cost, including compute, storage, and licences. That is your only option.
How it will work after the changes are implemented:
You will have a choice:
Continue with pay-as-you-go as you do now,
Reuse your Windows Server licenses with Software Assurance and only pay for computing resources.
The big question is whether it will provide the same savings as Azure. That will be dependent on the particular provider's pricing policy.
My wishlist: the things that are missing or yet unclear
Windows Server licences via CSP (Microsoft Customer Agreement)
Update: this wishlist item was implemented in October 2022.
Windows Server licences in CSP do not have Software Assurance. It may be inferred from the initial announcement that subscription licenses might grant the same benefits. That is subject to clarification.
SQL Server
Update: this wishlist item was implemented in October 2022.
SQL Server already has Bring-Your-Own-License rights. However:
They are only granted by Volume (Enterprise Agreement, MPSA) licenses with Software Assurance;
You may take SQL Server subscription licenses via CSP to Azure only, not to any other platform or provider;
Only Azure permits using SQL Server Standard licenses for SQL Server Enterprise instances.
That is still an unfair competitive advantage of Azure, and it is yet to be seen if and when Microsoft will address it.
System Center
Update: this wishlist item was implemented in 2023.
Although System Center has Bring-Your-Own-License rights, the current terms and conditions for using them in the public Cloud are unclear. I wish Microsoft harmonised System Center licensing with Windows Server terms and made the rules more transparent.
What is changing for Cloud providers?
Update: all of it was implemented in October 2022. QMTH is now irrelevant. All subscription licences and licenses with SA via all licensing programs have BYOL with Flexible Virtualisation Benefit.
Windows 11 and Office 365 updates
You may already host Windows 11 virtual machines and Office 365 applications if you have QMTH authorisation. If you don't have it, you're out of luck.
What is expected to change?
More European Cloud providers may be authorised to host Windows 11 and Office 365 applications. It is unclear if all European providers will be granted these rights. It is also unclear whether Microsoft will waive the QMTH requirement in Europe or worldwide.
Eligible Cloud providers will be able to offer bundled Hosted Desktop solutions, i.e. Windows 11 and Office 365, and, probably but yet unconfirmed, charge for them on a pay-as-you-go basis. No further details have yet been provided. Whether it will be a proper pay-as-you-go solution or involve bundling CSP licenses on current terms is yet to be seen.
Office Professional Plus and Office Standard updates
These licenses will have License Mobility through Software Assurance rights.
It is a bit of a mixed bag. On the one hand, it may help you "legalise" some of the rogue Office instances on your end-clients virtual machines. It won't be automatic and will require multiple stakeholders' manual effort.
On the other hand, it will introduce additional complexity in managing per-user and (God forbid!) per-device access to Office instances. In the worst case, Bring-Your-Own-License may turn into "Bring-Your-Own-Disaster".
Windows Server Standard and Windows Server Datacenter updates
Microsoft has announced that clients will be able to take their Windows Server licences with active Software Assurance to European Cloud providers' multi-tenant (public Cloud) environments using the same rules as for Azure.
As a Cloud provider, you should prepare for a substantial Windows Server licensing model change. Services Provider Use Rights will change, no doubt.
We may only speculate about the final implementation until official details are published. Will there be a new Windows Server licensing model? Will the Guest/Host model be improved and updated?
When will the new Microsoft Licensing rules be brought into effect?
There are a couple of potential dates:
June 01, 2022, with new Product Terms. The chances are low due to short notice. However, we may expect some minor changes to be implemented.
Shortly after July 01, maybe August 01. Microsoft's financial year starts on July 01. Such strategic updates are usually first announced at the Microsoft Inspire conference mid-July. Due to the revolutionary character of the changes, later dates look more probable.
What should you do in the meanwhile?
If you are a European Cloud provider, reach out to your Microsoft contacts and see if there's already something you can or have to do.
If you are a client of a European Cloud provider, you may already begin reviewing your licensing policies and strategies and your Cloud migration economics.
And if you'd like a no-obligation chat about your situation, whether you are a Cloud provider or a client, please don't hesitate to message us using the form below. We'll get in touch with you as soon as possible.