Switching from EA to CSP? Read this first!
Is it still a good idea to switch some or all of your Microsoft licensing to CSP in 2022?
"But we're still buying the same Microsoft licences, aren't we?"
Oh, you'll be surprised!
IMPORTANT: This article was updated in October 2022 to reflect the critical terms update. Don't worry, it's positive.
Very little information is catered to customers
Procurement, IT procurement, has no time for nitty-gritty licensing details. Things are overwhelming enough. There are hundreds of vendors to manage.
See, Microsoft and Microsoft partners, they know that too. I bet you haven't been told more than half of what I'm about to explain in this article.
Just look at the content around CSP and Microsoft licensing out there. How much of it is aimed at you, the "end customer" that has no time for extra detail and wants to understand if she's getting a fair deal behind all the smoke and mirrors of "Buying the VALUE"?
You'll find that 99% of the available information is catered to Microsoft Partners. It explains how to sell, not how to approach buying licences. It doesn't even mention the breaking changes between the Enterprise Agreement you've been dealing with for the last 20 years and the CSP program.
The differences are not purely commercial. Quite a few of them affect licensing compliance, and even your IT strategy may have to be reconsidered accordingly.
Same products, different rules.
I'll tell you a story about a friend and a long-term client. Let's call her Jennifer to respect her privacy.
You can watch it instead, by the way, but please bear in mind that it was recorded before October 2022, and some things have changed for the better since then:
First, a few facts:
Jennifer has been procuring Microsoft licences for 15 years, mainly through an Enterprise Agreement. From time to time, purely for economic reasons, she would authorise an alternative purchase via other types of Microsoft agreements like Open or MPSA. The licensing terms and conditions between them and EA are alike, so it's almost always been a question of what is strategically cheaper.
Jennifer has a reasonably sized on-premise server estate that her team has migrated from physical servers to virtual clusters and now moving some of the workloads to Azure and AWS.
A few years ago, she switched all users to Office 365, now Microsoft 365. But her IT still has legacy Office servers and desktop products everywhere. That is a scenario we see almost everywhere.
She is also not new to CSP, but its share in the licensing estate is below 10%. She likes CSP for its flexibility – the ability to cancel licenses at any time on a monthly billing schedule.
Jennifer has recently been considering if it is a good idea to move more, if not the entire Microsoft licensing portfolio, to CSP. She has no issues with its predominantly subscription model (OPEX). And she likes its flexibility, as mentioned earlier.
Moreover, she is under constant pressure from salespeople from various IT companies – her incumbent LSP and several outsourcers supporting her systems.
And here's why.
Traditionally, most of you would go to an LSP to buy licences, not directly to Microsoft.
Becoming an LSP is tough. There aren't that many of them. Competition is restricted by how EA works. Once you've signed an EA, you are attached to an LSP for its term. Those who tried to switch their LSPs midway know how hard it is.
CSP is a broader program, also predominantly indirect. There are more CSPs than LSPs as a result.
You can have multiple CSPs simultaneously providing you with services and licences.
The entire program was designed for Microsoft licences to be embedded inside the services you get from your IT outsources and suppliers. So a lot of them, understandably, jumped onto the CSP bandwagon.
In addition to that, traditional hardware manufacturers are getting serious about selling CSP due to the massive shift from hardware purchases to the Cloud. There are, for example, names like Lenovo and HP, very serious about becoming a formidable force in the area.
And, as you may imagine, many LSPs are also offering CSP licences these days.
So, Jennifer is constantly pushed and pulled towards CSP by a plethora of partners.
Trying to answer Jennifer's concerns, we sat with her and strategically looked at the entire picture.
Before considering licences, you should write down all the milestones, key dates and projects.
Here's Jennifer's list, reduced to keep it simple:
Her Enterprise Agreement was about to expire in June 2022.
She planned to migrate 20-30% of workloads to Azure by the end of 2022.
She wanted to move all development to the Cloud, but there was no solid plan.
The last physical servers were to be "virtualised" before EA expired.
In reality, it was a much longer list. And although not everything in your plans may affect your licensing choices, we suggest writing down everything.
Then we looked at the servers. We don't always begin with the servers, but I promised you a real story, so that's how it went.
Microsoft Servers may be split into five major groups. The next three are still relevant in 2022. Most of you will have them:
Operating Systems: Windows Server
System Management (looking after the servers): System Center
Database: SQL Server
In addition, you may also have:
Dynamics: relevant to many, but in 2022, it is already mainly in the Cloud, at least in the Western hemisphere,
Office Servers like Exchange and SharePoint. These are a dying breed with the migration to Microsoft 365, although some organisations, including Jennifer's, still have them on-premise.
Let's start with the simplest of them all – Office servers.
Jennifer had already cancelled Office servers' licences when she migrated all the users to Microsoft 365, although her organisation still had a few instances on-premise. All of them were virtualised, which plays a significant role when choosing the correct licenses.
How was she still compliant? It may not be evident if you are not a Microsoft licensing professional. Microsoft 365 E3 and E5 plans, when you procure them through an Enterprise Agreement, permit you to run unlimited Office servers on-premise for all the licensed users.
And here comes the first consideration about switching to CSP. The same Microsoft 365 packages procured through CSP don't grant these rights. See, same products, same licenses, different rules.
Jennifer had the following options:
She could purchase new Office Server licences. But since the servers were virtualised, she would need licences with maintenance (Software Assurance) that aren't available in CSP. So this option would not offer a clean break from pre-CSP licensing.
She could decommission on-premises Office Servers before the EA renewal date by migrating them to the native Microsoft 365 services in the Cloud. Why not?
She could move Office server workloads back to physical servers and use the legacy licences. But that would be against the other plans she had.
Fortunately, the cost of these licences is relatively low. It wouldn't break the bank, but it was still one of the things to consider.
Please remember: at this stage, we aren't taking any decisions yet. We are only writing our options down.
Windows Server and System Center
Now let's move on to the most essential and considerably expensive part of the server estate:
We are looking at them together because they often go hand in hand. In Jennifer's case, the organisation's IT uses System Center to manage almost every server.
In addition, there's a discounted bundle including both products - Core Infrastructure Suite.
And on top of that, Jennifer had a Server and Cloud Enrollment, giving her an additional discount of around 10%. Server and Cloud Enrollment is an Enrollment in an Enterprise Agreement. It's not a one-size-fits-all solution, and it may not necessarily work in your case. But it is beneficial for Jennifer's organisation.
Now, let me remind you of what was going on in Jennifer's IT estate:
Physical servers were being "virtualised", thus reducing the need for Standard licences and potentially but not necessarily increasing the demand for Datacenter licences.
Some workloads were being moved to the Cloud, including Azure.
Next, let's look at what CSP offers in this regard. Let's even begin with what it doesn't provide.
There is no System Center in CSP, so there is no Core Infrastructure Suite. And as a consequence, the discount of about 15% that she had been getting thus far is unavailable too.
Windows Server Datacenter, which you use on virtualised server farms. Until October 2022, it had no subscription or maintenance option in CSP. So Jennifer would be missing the following two things if she switched to CSP in mid-2022 entirely:
Version upgrade rights. She wouldn't be allowed to upgrade Windows Server to the latest version.
Azure Hybrid Benefit – the ability to "bring your own licenses" to Azure that provides noticeable cost reduction – would also be unavailable.
Was that a definite deal-breaker? As usual with Microsoft licensing, there is no "one size fits all" no answer that would apply to everyone's situation.
She could decide to stop renewing Software Assurance on the Core Infrastructure Suite Datacenter licenses regardless of her chosen licensing agreement. The licenses themselves were perpetual, and nobody would take them from her.
Plus, in my not-so-humble opinion, Azure Hybrid Benefit is the only practical benefit of Software Assurance (maintenance) for Windows Server.
Version upgrades, the other benefit, don't happen that often. Also, Microsoft had only recently released Windows Server 2022, the version that Jennifer may upgrade to even if she dropped paying for Software Assurance.
However, we should not discount that she was migrating to Azure and could reduce costs using Azure Hybrid Benefits.
The number of physical servers was in the process of being reduced. Therefore, Core Infrastructure Standard licenses were being freed up. If Jennifer renewed Software Assurance on them, she could re-use these licenses in Azure to achieve considerable cost savings.
But there is no Software Assurance in CSP. So a renewal from EA to CSP is impossible. Is there an alternative option in CSP? Yes. CSP provides subscription licences for Windows Server.
At the time of Jennifer's EA renewal, only Windows Server Standard was available. Since October 2022, Microsoft has also added Windows Server Datacenter subscription licences. You may take them to Azure. They are even named "Subscription licenses for Azure". And they are also cheaper than Azure pay-as-you-go licensing.
And here are a few things that you need to consider:
A realistic timeframe to migrate to Azure,
A realistic timeframe for "freeing up" the on-premises licences,
The number of licences you need in Azure,
The cost of renewal of Software Assurance for Windows Server,
And then compare it to the gradual (I emphasise, GRADUAL) increase in the requirement for Windows Server licences in Azure. You won't need all these licences in one day.
As you may notice, it is a multi-variable, time-dependent calculation.
You may have also noticed that switching to CSP isn't necessarily painful regarding Windows Server and System Center. If Jennifer didn't renew these licences in an Enterprise Agreement, the sky wouldn't fall on Earth. Fortunately, it's a question of cost, not compliance.
But when it comes to the database servers, it's different.
Microsoft SQL Server, when it's virtualised, requires Software Assurance. It also needs Software Assurance for resilient, business-critical solutions involving disaster recovery and high availability.
So, Jennifer could not simply cancel her Enterprise Agreement without a plan. She had to renew SQL Server in an Enterprise Agreement or a separate volume agreement or switch to subscription licences in CSP.
Unlike Windows Server, the calculation she had to do was a simple cost comparison of these options.
Fortunately, CSP's licensing terms and conditions for SQL Server and Windows Server are not that different from those in an Enterprise Agreement. You only need to remember two things:
There is no Software Assurance in CSP; if you need it, most of the equivalent benefits are included in subscription licences.
And thus, you should never consider perpetual licences in CSP if you need Software Assurance equivalent benefits.
And that concludes our server considerations.
Desktops - Microsoft 365
On the desktops, Jennifer's organisation uses Windows 10/11 and Office 365. As I said before, when she renewed her Enterprise Agreement the last time, she chose a mix of Microsoft 365 E3 and E5, which include both these components plus some handy security features.
As we analysed Jennifer's situation, we wrote down a few things about her IT infrastructure that could impact her licensing decisions. Let's focus on the following two:
In addition to desktops and laptops, Jennifer's organisation uses virtual machines with Windows 10, 8, and 7. Those machines are virtualised on their on-premise servers in a so-called "VDI infrastructure".
Due to historical and compatibility reasons, some users needed Microsoft Office Professional Plus. If you are unfamiliar with Microsoft licensing, it's a different product from Office 365, requiring separate licenses. However, when Jennifer switched to Microsoft 365 E3 and E5 three years ago, she bought the so-called "From SA" licences. Those licenses allow users licensed for Microsoft 365 to install Office Professional Plus on their desktops and laptops.
As long as Jennifer stayed in an Enterprise Agreement, she didn't need to change anything.
But if she switched to CSP in the mid-200, both these use cases would become non-compliant. Remember, same products, different rules in CSP.
At the time, CSP did not permit virtualising Windows client operating systems on-premise. Jennifer could move the entire VDI infrastructure to a third-party provider. But would she want to do it? From October 2022, on-premises VDI is finally allowed in CSP.
Microsoft 365 E3 and E5 in CSP do not have the "From SA" option; therefore, Microsoft Office Professional Plus usage would also become non-compliant.
Cost and flexibility considerations
If that is not enough food for thought, there are also cost and flexibility considerations.
After the introduction of the "New Commerce Experience", CSP customers have the following options:
Monthly term. Its price can change every month. It is also 20% more expensive than the annual option.
Annual term. The price is fixed for a year. No reduction is permitted until the end of the subscription.
3-year term. As you may have guessed, the price is fixed for three years. And again, no reduction is permitted until the end.
There is no more flexibility that CSP customers used to have in previous years.
How does that compare to the Enterprise Agreement? Well, the EA is more flexible. The price is fixed for three years. But reductions are permitted at each anniversary. In the current uncertain economy, EA is a lower risk.
What did Jennifer do?
So you may be wondering what Jennifer decided to do. How did this exercise affect her desire to switch to CSP?
Considering all the above and the additional discount we negotiated with the LSP, Jennifer stayed with the Enterprise Agreement.
Would the outcome be the same for you? Not necessarily. Microsoft licensing has many variables and moving parts, and everyone's story is unique.
But something has recently affected everyone's options, including yours, and that is the New Commerce Experience.
I'm not sure what Microsoft is trying to do. On the one hand, they have been telling us for over ten years that the Enterprise Agreement is outdated. On the other hand, the Enterprise Agreement lobby inside Microsoft appears always to win the battle with every licensing innovation.
The MPSA agreement was going to replace EA. Where is it now?
CSP was our next hope. But look what they've done. Update: the situation is improving with the October 2022 changes, but there's still a long way to go.
Firstly, we are offered licences that are effectively crippled compared to their Enterprise Agreement equivalents.
Secondly, some enterprise-grade products are missing from the CSP entirely: System Center is a good example.
And thirdly, Microsoft 365 subscriptions in the New Commerce Experience are less appealing than in the Enterprise Agreement.
In the past year, we hadn't seen a case when CSP was better for our clients than renewing their existing Enterprise Agreements.
But as I said, your situation may be different.
What can you do?
We recommend you the following, as we do with each client of ours:
Have a clear and realistic plan of your IT transformations for at least three years ahead,
Make sure your licensing team and your Cloud team are not competing for attention – they must collaborate,
Understand what licensing terms and conditions your infrastructure currently requires and what it will require in the next three years,
Account for Azure Hybrid Benefit, don't ignore the cost savings opportunity,
Compare all options financially: talk to CSPs, to your LSP, get all their offers and compare them,
And don't forget the differences in Terms and Conditions, or you may find yourselves in a peculiar situation when it's already too late.
Talk to a Microsoft licensing expert
We are an independent consulting business that sells no licenses or Cloud services. That is on purpose, so our advice is unbiased. EA vs CSP is a tricky subject, and it's better to know how it can affect you before you switch.
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