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May 18, 2024

Breaking Away from Microsoft SPLA

SAMexpert Podcast

Some service providers may get rid of SPLA entirely. Some may reduce SPLA exposure. There are two options: Self-hosting and the Flexible Virtualisation Benefit.

There are rules and strings attached, but it's not impossible.

Let's dive into "what", "why" and "how" with our CEO and founder, Alexander Golev.

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Episode Transcript

We are going to talk about breaking free from Microsoft SPLA. It's probably not obvious, but if you're a service provider, it's an absolute possibility. We can do that.

Some of the providers, when they learned about the Flexible Virtualisation Benefit, started asking questions, "Shall we maybe get rid of SPLA? Do we need SPLA to provide our hosting services? Is it possible?"

They recognise the potential for economic advantages and see the problems with SPLA. They see that Microsoft completely lost interest in SPLA. SPLA is still active and will survive for another five years, Microsoft guarantees. But you can kind of see that Microsoft stopped caring about it.

If you want to build a relationship as a Microsoft partner, you should play by their rules and please the account managers you work with; they need to get bonuses from their sales, and nobody gets bonuses from SPLA.

So, is it possible to get rid of SPLA?

Yes, but there are certain limitations.

The questions we get from service providers are like these:

  • "We are a SaaS company. Can we improve the bottom line?" You can do it by choosing the right licensing program.

  • "We are a CSP, and we want to maximise the bottom line of managing CSP and selling CSP licenses". By all means, there's a way, if you're a service provider, to increase your CSP revenue. There are caveats, which we'll discuss, but it's possible.

  • "The local Microsoft office is pushing us away from SPLA; they want to move our clients to Azure, if not to Azure, then to CSP."

SPLA is expensive. Audits are Scary. Audits are difficult. SPLA audits are confusing. We support at least ten audits a year on the client side, not on the Microsoft side, don't take me wrong. And they are frustrating. They are difficult. That's another reason to eliminate SPLA or at least limit its exposure.

Clients can insist on bringing their own licenses. That is happening all the time, and you need to know how it works. For example, you can't just jump into BYOL without understanding how it affects your compliance. But again, it's possible. You could break free wholly or partially from SPLA.

There are tools provided by Microsoft itself. We're not talking about shortcuts. We're not talking about workarounds. These are actual tools provided by Microsoft. It isn't straightforward. Finding those little bits of information is difficult.

What are the options if you want to break away from SPLA?

If you're a service provider, a SaaS company, or a hosting provider, and you want to eliminate or reduce SPLA in your estate, you can do it.

The Flexible Virtualization Benefit is available to every provider, regardless of what kind of business that provider does. It's been around for at least a year and a half already. It was introduced in October 2022. It says that any license with Software Assurance or on a subscription, including CSP subscriptions, may be brought to any service provider with shared or dedicated hardware unless that provider is Amazon, Google, or Alibaba.

Azure is also on that list. However, as it's Microsoft, of course, they kept a backdoor for themselves: Azure Hybrid Use Benefit.

So you need to remember that if, for example, as a service provider—and we do have clients who are such service providers—you use Google's infrastructure to host your end clients, the Flexible Virtualisation Benefit is unavailable to you.

On the other hand, unless you are hosting on Google, Amazon, or Alibaba, there are no more verification forms. There's no verification process.

We still advise you to at least ask for evidence of eligible licences, but this is no longer a requirement. Therefore, the Flexible Virtualisation Benefit is available to everyone.

Plus, we have a very interesting niche in the provider business—SaaS companies hosting applications in their data centres or renting rack space from an infrastructure provider like OVH, Aruba, Rackspace, GoDaddy, Kyndryl, or Oracle Cloud. They rent hardware from such providers and want to improve their bottom line. Can they do that? Yes. There's a self-hosting benefit for SaaS companies.

Let's talk about the benefits

Why would you want to go off SPLA and pursue alternative licensing routes?

With Self-Hosting, for SaaS companies, it's pretty obvious. Volume licenses must be with Software Assurance or subscription, but they are cheaper than SPLA. They are significantly more affordable than SPLA. So, your bottom line looks better if you use self-hosting options. If you organise it properly and tick all the boxes, including all the requirements for self-hosting, then licenses will cost less.

It may not be evident that Microsoft audits providers more frequently than non-providers. When you leave the SPLA scope with your SaaS solution, you go on your self-hosted licenses, acquired through traditional channels, such as CSP, Enterprise Agreement, MPSA, or any other channel. Then, you are no longer on the radar of the audit department, which goes after providers and the risk of the audit is going down. We can't guarantee that Microsoft won't go back to the practice of auditing end clients. But, as it stands right now, the focus of the audit department is on the providers.

With the Flexible Virtualisation Benefit available to everybody, you don't have inbound license costs as you're not reporting SPLA licenses. Using FVB may reduce the cost for the end client because if they already have licenses, they don't need to pay for SPLA.

They don't need to buy new licenses. They can just bring the eligible licenses and deploy them in your infrastructure, which may be more interesting for them. You can show them the cost of a VM with their license, which will not include the SPLA costs, which improves your competitive position.

On the other hand, if they need to buy licenses, you can sell them their CSP licenses. Obviously, when they procure licenses from you, your CSP revenue improves, positively affecting your overall bottom line.

So how do you do that?

Not everybody can completely get rid of SPLA, but anybody can reduce the share of SPLA in their estate by pursuing these two options.

Just so you understand, I'm talking about live scenarios here, not theoretical ones. We consult providers on this subject. Our advice results from months and months of practice, thinking, concluding, and learning from the mistakes made by us or our clients. All of this is practical knowledge.

Microsoft's website has quite confusing rules for self-hosting. If you know how to read Microsoft licensing documentation, you will be able to read and understand it. It's not rocket science, but let me digest the rules to make them as humanely digestible as possible.

Point number one is that intellectual property must belong to the SaaS provider. So, self-hosting is for SaaS and ISVs. It is for SaaS companies that host themselves. Intellectual property must belong to you. If you are hosting, for example, a hypothetical ServiceNow or another tool licensed from somebody else, your partner, or a different vendor, then self-hosting won't work.

It's called self-hosting. You are hosting your own solution; you are "self-hosting". So, the solution must be built in-house; you must own it. Microsoft products you use must be eligible, but when we work with SaaS companies, we find that they usually only use Windows Server and SQL Server. When there are Windows Server and SQL Server instances that support their SaaS solution, and there's no SharePoint, Exchange, or Office involved directly or indirectly, the solution is eligible for self-hosting.

How can you ensure that your solution is eligible? You can go to the Product Terms website or DM me, and I'll give you a list of products eligible for self-hosting. Don't hesitate to contact me if you have any questions. Find me on LinkedIn. Send me a DM. I'll send you that checklist pre-digested; otherwise, you'll have to go through each and every product. There's no list like that on the Microsoft product Service website.

You can't provide remote desktop access; it must be a web application—that's the third point. No legacy apps are allowed because one of the rules of self-hosting is no direct access to Microsoft products.

When you provide Remote Desktop connections, you provide direct access to Windows Server. In that case, your solution won't be eligible for self-hosting. Again, the majority of the SaaS companies we work with are eligible.

Licenses must be on a subscription or with an active Software Assurance. They will be classified as OPEX. You can't use second-hand licenses. You can't use perpetual licenses. You can't use perpetual CSP because self-hosting is a software assurance benefit. CSP subscriptions provide the same benefits.

Let me reiterate these rules.

  1. IP, intellectual property, must be yours,

  2. The Microsoft products must be eligible,

  3. There must be no remote desktop, no direct access,

  4. Licenses must be with Software Assurance.

You see, self-hosting is quite restrictive. It is designed for SaaS companies.

On the other hand, the Flexible Virtualisation Benefit works for any hosting provider. It's almost unrestricted. Almost. The only limitation of the Flexible Virtualization Benefit is that the licenses your end clients bring on your platform must be on a subscription or with active Software Assurance.

Two points to make here:

  • Flexible Virtualisation Benefit is a Bring Your Own License program. Unlike in SPLA, you host your end-customers' licenses.

  • When you include, for example, CSP licenses in your service, you effectively sell these licences to the end client.

There is no need to become a CSP-Hoster. Don't make that mistake. There are benefits to the CSP-Hoster program, but the Flexible Virtualisation Benefit does not require CSP-Hosting. Also, we have recently heard that auditors, during audits, tell clients that they must become a CSP-Hoster to provide Flexible Virtualisation Benefit or host Office 365. That is not true. There's no better way of putting it.

You don't need to become a CSP-Hoster. Flexible Virtualisation Benefit is a right given to the end clients. It says that unless the provider is Google, Alibaba, or Amazon, they can take their subscription licenses to any provider, shared or dedicated. No authorisation is required.

All Microsoft products work. Unlike the self-hosting scenario, which permits only a limited subset of products, the Flexible Virtualisation Benefit applies to every Microsoft product.

Imagine this. You can build an entirely new infrastructure, run it alongside legacy SPLA infrastructure, and slowly migrate clients to this new infrastructure where everything, including even Windows Server, could be licensed with CSP licenses that your end clients bring or buy from you. And there is no SPLA.

It's possible, and we're working with a few providers on how to build it in their particular scenario, with their limitations and client base. We are looking at how they can re-configure their services because there may be obstacles. But there are also solutions and workarounds.

One of the biggest obstacles is that you can't escape SPLA if your hypervisor is Hyper-V. Unfortunately, if your hosted infrastructure runs on Hyper V, you must report Windows Server through SPLA. But if you are on KVM, Nutanix, or, excuse me for mentioning it, VMware, you're not bound by the terms of licensing the host's operating system in SPLA. Flexible Virtualisation Benefit allows you to license virtual machines with Windows Server licensed per VM.

Hosted Exchange or any other shared virtual machine may also be a problem. Shared virtual machines must be kept on the SPLA infrastructure. When a VM is shared, it must remain under SPLA. Unfortunately, there's no workaround for that.

I'll remind you again that if you need a cheat sheet, please DM me on LinkedIn.

We will have another SPLA event soon, where we will talk about SPLA audits starting from the beginning: what to do and what not to do at the first steps when you receive a notice, your rights, and your obligations. We'll give you peace of mind. Everybody gets frustrated, agitated, and scared when they receive the notice from Microsoft. But if you play it well, there's no reason to be scared.

On that note, thank you very much for being here today. I'm your host, Alexander Golev, from SAMexpert. I'll see you next week at the usual time—Wednesday at three o'clock—for the next audio event. Have a great day and goodbye.