What's new in Microsoft Cloud & Licensing in April 2023

The hero of the Microsoft licensing update this month of April 2023 is Windows Server. Microsoft changed a lot. 

• We were given a cheaper and simpler Azure Hybrid Benefit but only for Windows Server. SQL Server remains unaffected. 

• We got less expensive "license-included" options for Windows Server only on CSP hosters - a limited subset of providers.

• We were also given simplified and cheaper virtual machine licensing. 

And we will start with Azure Hybrid Benefit. Honestly, if you have an Enterprise Agreement and are not using Azure Hybrid Benefit for Windows Server, you're missing out on a huge cost-saving option. We have clients that, due to their substantial discounts on Microsoft licenses, save up to 95%.  

Microsoft made it even cheaper. Firstly, they removed the limit of the minimum licenses you must assign to Azure, which was 16 single-core licenses. The only minimum that remains is eight licenses per virtual machine. Therefore, the minimum you need to move to Azure as a part of Azure Hyper Benefit is only eight core licenses. 

The minimum of licenses per virtual machine stayed the same, but what changed then? Before, if you wanted a bigger VM, say a 10-core or 12-core VM, you had to jump from eight licenses straight to 16. Now, the increment is exactly as on-premise – by two licenses. So, if you have a 12-core VM, you only need to assign 12 core licenses instead of 16.

Any virtual machines below eight cores, unfortunately, still require eight cores.

For startups, for somebody who is only trying Azure, that's up to 50 per cent savings on the licenses, which is good news. 

All the other companies, including enterprises, are also positively affected by the decreased increment requirement from eight to two core licenses. If your virtual machine is between the multiples of eight, you only need to assign the exact number of cores in that virtual machine. And no strings attached. It works for CSP subscription licenses, and it works for licenses with Software Assurance through any channel. 

And then we have two tricky updates, so please pay attention to details.

First, Microsoft announced that Windows Server CALs will not be needed if a virtual machine is licensed per virtual machine on a CSP-Hoster. Notice that it works only on CSP-Hosters – a tiny subset of providers. Microsoft is promising to invite more providers into the elite club of CSP-Hosters. 

The other caveat here is that the license must be included with virtual machines. It doesn't apply to Bring Your Own License scenarios. If you want to bring your own Windows Server license per virtual machine, and some clients started doing that, Windows Server CALs are still required. That's the requirement of the Flexible Virtualization Benefit. 

As an end client, if you use this option, you'll see the running cost decrease. 

Windows Server CAL is not required in Azure. It's not needed in SPLA – it just doesn't exist in SPLA. And from now on, it's not necessary for license-included CSP hosting when it's licensed per virtual machine. 

Remember that you still need Windows server CALs in a Bring Your Own License scenario. 

What are the benefits and what are the drawbacks of this? The positive thing is if you go for the license included option with a CSP hoster, then you need fewer licenses compared to other providers with the Bring Your Own License scenario because you don't need CALs. 

And, obviously, as a consequence of that, you get lower running costs. But there are also negatives and a big elephant in the room here. Is your provider a CSP hoster? Or, if you are a provider listening to this, are you a CSP hoster? Because if you're not, it doesn't apply to you. 

The second negative is that "license-included" means the provider must sell you a license with the virtual machine. It's more complex than renting a virtual machine from Azure or AWS. It's more complicated than renting a virtual machine from a SPLA provider. You must jump through all the hoops of acquiring a license when buying a VM from a CSP-Hoster. It must be assigned to your tenant, and the minimum subscription term is one year.

I don't know who will use this unless Microsoft ultimately suffocates SPLA. As long as SPLA exists, it provides you with monthly subscriptions. You pay for the actual consumption. You don't pay for a license upfront. There are no monthly subscription options for Windows Server in CSP; the shortest subscription term is one year. 

SPLA is still better for Windows Server licensing. And as long as SPLA itself exists, it'll continue to be the best option. That is unless you're a charity. Charities can have lower hosting costs if they bring their licenses. That is because SPLA does not provide charity discounts, and CSP does, although the CSP discounts aren't publicised - ask your licensing partner. 

It's a bizarre update. We'll see how it's going to play out. I'm still determining.

In other news, we also got simplified Windows Server licensing per virtual machine. And as a result, it is also cheaper. Microsoft introduced the per-VM licensing option in October 2022. In April 2023, Microsoft removed one non-sensical condition. Previously, if you wanted to license even one virtual machine per VM, you had to have at least 16 single-core licenses exclusively assigned to the per-VM licensing model, even if you only needed to run one virtual machine. It made zero sense. So Microsoft waved it, finally.

From April 2023, if you want to begin licensing Windows Server per VM, you can start with only eight core licenses, the minimum of cores required per virtual machine. 

In addition to the above, you may use Windows Server Standard licenses to license Windows Server Datacenter virtual machines per VM. It was done to align per-VM licensing with the Azure Hybrid Benefit terms. 

However, there is a catch. It is only allowed if you use CSP licenses – and that's important, only CSP licenses; Enterprise Agreement licenses do not benefit from this cost-saving relaxation of licensing terms. 

Why didn't Microsoft include Enterprise Agreement licenses? It eludes me. It could be because the enterprises have more money than small businesses. They may be targeting sales to small businesses through this new rule. 

But then, almost nothing prevents an enterprise from buying Windows server licenses through CSP. You may have an Enterprise Agreement for products like Office, Project, Visio, or SQL Server and decide to buy Windows Server licenses through CSP. Why not? Enterprise Agreement only prohibits it if you have a specific Server and Cloud Enrollment. However, you won't get the same discounts through CSP. If you're a gigantic enterprise with significant Level D discounts, you won't be given the same discounts through CSP. 

Only CSP licenses benefit from the new rule. The savings are substantial, up to 85%, because the price ratio between Windows Server Standard and Windows Server Datacenter is about 1 to 7. Judge for yourselves. 

There is also an unpleasant update for those who use Dynamics NAV and Dynamics AX hosted by a SPLA provider. When such provider renews their SPLA agreement, they will be unable to offer NAV and AX through SPLA. How that will work for end clients with NAV and AX eludes me entirely. You can't buy these products through volume licensing anymore. These licenses are only available through SPLA.  

There is a pressure on Microsoft from the European Union. There's an association of European providers, CISPE, bringing to the attention of the European Commission what they call unfair advantages of Microsoft Azure compared to other providers. And there are many. When I had brainstormed it for only a few minutes, I came up with five "unfair advantage" examples. When I posted about it on LinkedIn and sent direct messages to other experts, they came back with more examples. 

The Azure's competitive licensing advantages were, and still are, notable. For example, one of the advantages of Azure is that you can use Windows Server Standard licenses via Azure Hybrid Benefit to assign them to Windows Server Datacenter virtual machines. In April 2023, Microsoft granted a similar right to on-premises usage and BYOL scenarios, but only partially. 

The result is a half-measure. On-premises, this relaxed right is only granted if you have CSP licences. Enterprise agreement licenses don't work the same. On hosting, it only works if you rent "license-included" VMs from a CSP-Hoster. If you bring your own licenses, the new rule does not apply. How is it similar to Azure Hybrid Benefit, which is BYOL? It isn't. They didn't align it with Azure. 

The other licensing advantage of Azure is you don't need Windows Server CALs. VMs rented through SPLA also don't require CALs. But if you bring your own licenses to another provider, not Azure, you need CALs. So, in total, it will cost you more than in Azure. 

In April 2023, Microsoft granted a Windows Server CAL waiver to providers. Did they, therefore, align it with Azure? You guessed it; they didn't. They decided to only give it to CSP-Hosters and only via the "license-included" option. It doesn't apply to BYOL. It is another half-measure, not a wholehearted licensing simplification. 

I'm being hypothetical because I don't really know what's going on inside Microsoft. But it almost comes across as if there is a team in Microsoft that actually wants the change. And "traditional" product sales teams are saying, "Wait! You're affecting our income!"

So, that is the April 2023 update. Don't underestimate it, even if it doesn't immediately affect you.

If you want to discuss this further, please email us at ask@samexpert.com.

Let me read the comments. 

"Hello, Alex. Can we license some Windows Servers per VM in our environment and the rest per physical core? Can we mix it?" 

We get this question almost every week. And the opinion is yes, it's okay.

Pay attention, however, that when you license hosts "traditionally" at the physical level, you must always use the same edition and version of licenses. No such restriction exists for newer VMs when you license them individually – per VM.

For example, you have a cluster with Windows Server 2019 Datacenter licenses assigned to it; all the Windows Server virtual machines using versions 2019 and before are licensed for unlimited virtualisation at the host level. Recently, you decided to deploy a few virtual machines running Windows Server 2022. You have two options:

• Relicense the entire cluster with Windows Server 2022 Datacenter.

• License the Windows Server 2022 virtual machines per VM. In this case, however, you must remember that all the Client Access Licenses (CALs) must be upgraded to Windows Server CAL 2022. Moreover, all these CALs must be subscription licences or have active Software Assurance.

Again, that's an expert opinion. We're still waiting to see an official explanation from Microsoft.