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.
One of the things that I realised pretty quickly in this business was that 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.
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.
And if you have already been buying CSP licenses in the last five years, there are strategic changes that will affect you too, and pretty soon, with the "New Commerce Experience", if they haven't yet. Well, there's a reason for this name, New Commerce Experience.
I'll tell you a story about a friend of mine and a long-term client. Let's call her Jennifer to respect her privacy.
You can watch it instead, by the way:
First, a few facts:
1. 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.
2. 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.
3. 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 all over the place. That is a scenario we see almost everywhere.
4. She is also not new to CSP, but its share in the overall licensing estate is well 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.
CPS 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 are getting from your IT outsources and suppliers. So a lot of them, understandably, jumped onto the CSP bandwagon.
Plus, 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 down with her and strategically looked at the entire picture.
Before you begin thinking about licences, you need to write down all the milestones, key dates and projects.
Here's Jennifer's list, reduced to keep it simple:
Her Enterprise Agreement expires in June 2022.
She plans to migrate 20-30% workloads to Azure by the end of 2022.
She wants to move all development to the Cloud, but there is no solid plan yet.
The last physical servers should be "virtualised" before EA expires.
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 has a few instances on-premise. All of them are virtualised, which plays a significant role when choosing correct licenses.
How is 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.
So, in that regard, Jennifer had the following options:
She could purchase new Office Server licences. But since the servers are 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 applicable legacy licences. But that's against the other plans that she has.
Fortunately, the cost of these licences is relatively low. It won't break the bank, but it's still one of the things to consider.
Please remember, 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 here because they often go hand in hand. In Jennifer's case, the organisation's IT uses System Center to manage almost every server.
Plus, there's a discounted bundle including both products - Core Infrastructure Suite.
And on top of that, Jennifer has 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. So she has it.
Now, let me remind you of what's going on in Jennifer's IT estate:
Physical servers are being "virtualised", thus reducing the need for Standard licences and potentially but not necessarily increasing the demand for Datacenter licences.
Some workloads are 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, and hence 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, has no subscription or maintenance option in CSP. So Jennifer would be missing the following two things if she switched to CSP entirely:
1) Version upgrade rights. The Windows Server version would be fixed.
2) Azure Hybrid Benefit – the ability to bring your own licenses to Azure, which provides noticeable cost reduction.
Is 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 may decide to stop renewing Software Assurance on the Core Infrastructure Suite Datacenter licenses regardless of what licensing agreement she chooses. The licenses themselves are perpetual, and nobody will 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, which is the other benefit, don't happen that often. Also, Microsoft has only recently released Windows Server 2022, and that is the version that Jennifer may upgrade to even if she drops paying for Software Assurance.
However, we should not discount that she is migrating to Azure and could save costs using Azure Hybrid Benefits.
The number of physical servers is being reduced. Therefore, Core Infrastructure Standard licenses are being freed up. Provided that Jennifer renews Software Assurance on them, she may 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 Standard. 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 of "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 doesn't renew these licences in an Enterprise Agreement, the sky won'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 choose to either 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, as well as for 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, and 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 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 had written 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, 7. Those machines are virtualised on their on-premise servers in a so-called "VDI infrastructure".
Due to historical and compatibility reasons, some users still require Microsoft Office Professional Plus. If you are not familiar 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 stays in an Enterprise Agreement, she doesn't need to change anything.
But if she switches to CSP, both these use cases will become non-compliant. Remember, same products, different rules in CSP.
CSP does not permit virtualising Windows client operating systems on-premise. Jennifer may move the entire VDI infrastructure to a third-party provider. But will she want to do it?
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 the entire three years. And again, no reduction is permitted until the end.
There is no more flexibility that CSP customers used to have in the 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 there's something that 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, it's clunky, it's not fit for purpose. 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.
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: Windows Server Datacenter and System Center are two examples.
And thirdly, Microsoft 365 subscriptions in the New Commerce Experience are less appealing than in the Enterprise Agreement.
If you watched our previous videos on the subject of CSP versus EA, you might have noticed that we used to be quite enthusiastic about the switch, about all the additional commercial flexibility CSP offered.
I'm not that convinced anymore.
In the past year, we hadn't seen a single 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.
Please use the form below if you'd like us to look in your situation.