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Microsoft SPLA changes and updates

Microsoft SPLA is a relatively "static" licensing programme. Almost nothing has changed since Microsoft migrated the Service Provider Use Rights (SPUR) document from a regularly published Word file to a website.

However, recently, Microsoft has announced significant changes, which may have long-term implications and even cause some providers to review or close their Microsoft hosting services.

What is changing on October 01, 2022?

  • QMTH providers will start gradually migrating to the new CSP Hoster programme. The migration is voluntary. If you want to remain in QMTH, you may. However, please read the next point.

  • QMTH will lose its sense because Microsoft promised to expand Office 365 Apps and Windows 11 hosting to all hosting providers.

  • Many new products and licenses will get a License Mobility equivalent right called "Flexible Virtualization". BYOL is expanding.

  • Windows Server will finally get the option to license virtual machines based on virtual cores, similar to how SQL Server is licensed. Plus, end clients will get the right to bring their Windows Server licenses to a hosting provider.

  • There will be a three-year period until September 30, 2025, at the end of which providers will have to stop "outsourcing licences" to Listed Providers (AWS, GCP, Azure, Alibaba). 

We have already covered the first three points in the linked articles. Let's talk about the impact of the last two because, for some of you, the impact may be significant.

Windows Server BYOL challenges

As pitched by Microsoft, all SPLA providers will be able to offer their end clients a "Bring Your Own License" option. On the other hand, Microsoft has repeated a few times that there will be no changes to the SPLA programme.

That isn't easy to imagine. Here's why.

Currently, providers license their hosts with Windows Server or Core Infrastructure Suite Datacenter. There's a predictable cost per host's core, and all the hosted virtual machines are fully covered. The provider recovers the costs by charging end clients for their virtual machines. The more virtual machines there are on the host, the lower the cost per VM and the higher the provider's margin on the license. 

If end clients are given an option to bring their licenses, that can create a "licensing mess", a mixture hard to imagine working. If a host is already licensed with Windows Server Datacenter, how can a provider discount and recover the costs of virtual machines covered with end users' licenses? 

Microsoft will need to clarify this and possibly, introduce a new licensing model in SPLA. There's no way for the SPUR to remain as is. 

Of course, some providers may opt for deploying an entirely new infrastructure for Windows Server BYOL, but it may not be a feasible solution for many of them. It will mean new investment, restructuring of the current Cloud environments, changes to the billing systems, and much more.

End of "license outsourcing" to Listed Providers

Let's start with the fact that the heading of this paragraph makes no sense. It does not seem to make sense to Microsoft employees either, as, to this day, nobody has managed to clearly explain what it means in the context of the SPLA agreement and SPUR.

Here's our take, our educated guess.

Service Provider License Agreement stipulates terms and conditions for outsourcing workloads (not licenses) to, in the terminology of SPLA, "Data Center Providers" (DCP). If you are a service provider with SPLA, you may use another provider's data centre to host your end-customers workloads. You may then report "DCP eligible" licenses through your SPLA agreement. 

This permission resulted in various fruitful collaborations and partnerships between providers. It also lets you offload some end-client VMs to hyperscalers like AWS, one of the so-called "Listed Providers". AWS does not offer SPLA licenses beyond: 

  • Windows Server (they must do it by the terms of the current SPUR),

  • SQL Server Core (no SALs),

  • Visual Studio SAL + RDS SAL (the recent addition).

Hyperscalers simply don't want the complexity and the headache of managing the entire SPLA price list. By working in collaboration with smaller providers, hyperscallers effectively offload the headache. It's a win-win. And it seems like Microsoft doesn't like it.

The reason behind the September 30, 2025 deadline may be that Microsoft must change the DCP terms in SPLA, in the agreement, not SPUR. It means new agreements will have to be signed, a gradual process. If we are correct, it also means that some providers will be hit by the change earlier than September 30, 2025 – at their agreement's renewal date.

Microsoft is pitching the change as "aligning SPLA with its original intent – to support datacentre providers". Yes, this may positively impact the ecosystem of providers invested in their own data centre capacities. But smaller providers and SaaS companies may have to reassess how they do their business. 

We'll be watching this space very closely. We are already working with some providers on mitigating the potential impact. However, as always, nothing is official until it's made official. Let's wait and see. We can be wrong.