New Microsoft licensing agreements. What you need to consider

In reaction to European competitors complaints for anti-competitive practices, Microsoft announces that new license agreements and cloud hosting conditions will be effective on October 1, 2022. For the Redmond firm, there is no doubt that joining a maximum of European cloud operators would allow to better counter its competitors, in detriment of the end user, that will be more and more locked in.

In May 2022, after being targeted by a complaint from OVHcloud and Nexcloud for anti-competitive practices, Microsoft had committed to review and simplify its licenses policy in Europe to help cloud providers to host its solutions and help customers to use their licenses with other providers, the same way they do with MS Azure.

In fact, Microsoft is shifting away from a multicloud paradigm, allowing European cloud providers to use its sofware licenses at lower costs, while also charging more for the use of its software running in the clouds of competitors (AWS, Google, Alibaba), also called "listed providers" in its licensing policy.

"Today, it is indeed up to 80% cheaper to run Windows Server virtual machines on Azure and SQL Server VMs on Azure than with our main competitor," said the president of Microsoft.

What will change on October 1?

• Running workloads in other clouds

Customers using Software Assurance or subscription licenses will be able to use their own licensed software to create and run workloads on their choosing provider, with the exception of AWS, Google, and Alibaba. European operators and customers (excluding those using competitors' stacks listed by MS) will be able to more easily migrate Windows Server workloads from local servers to the cloud.

French and/or European CSPs that have built their cloud solutions on AWS, Google, and Alibaba infrastructure will also be impacted by the new Microsoft licensing agreement (as regard to MS licence policy i.e. any subcontractor using a vendor on the list of excluded CSPs as part of the subcontracting service).

According to the CISPE, "this could prevent cloud infrastructure providers from combining their services with those of [listed ] providers to provide redundancy or operational resiliency required by some customers"

• Desktop Virtualization

Any user of a Microsoft 365 license (F3, E3 or E5) will be able to virtualize Windows 10 or Windows 11 on their own servers or those of their partners, without needing additional license (VDA).

• Cloud Hosting

Cloud service providers will be able to host additional products such as Windows 11 and Microsoft 365 Apps for Business/Enterprise, to offer complete hosted desktop offerings through BYOL licenses and service provider licenses.

• Software Assurance

Microsoft is adding "mobility license" rights to Software Assurance for Windows Server, Windows Desktop and Office , allowing them to be used on shared or dedicated hardware with European cloud providers. Customers will also be able to more easily migrate their on-premises license agreements to the cloud, according to their Software Assurance agreements.

• License purchase with no hardware restrictions

Microsoft introduces the possibility to buy Windows Server only for the required virtual capacity, without reference to physical hardware. It is unclear whether this option will be available worldwide or only in Europe, and whether it will only be offered in third-party data centers. "It is also unclear whether other license types will be affected and what the pricing or additional requirements (including certification) for these new virtual based licenses will be" says CISPE

• New type of license agreement

Microsoft wants to add a 3rd category of license called CSP-Hoster and restrict the use of SPLA licenses. "This adds further confusion, increases the differentiation of licensing costs for the same software, and further locks partners and their customers into Microsoft environnement. There is no guarantee at this point that customers will be able to resell or transfer licenses they no longer need" according to CISPE.

• Long-term fixed prices at European level

European CSPs and their customers will benefit from greater price stability. By removing this volatility, CSPs will be able to compete with on-premise solutions in more areas.

The Cloud Solution Provider (CSP) program is also evolving to provide greater price stability for solutions. CSP partners will be able to offer one- or three-year subscriptions for several products, including Windows Server, RDS (remote desktop) and SQL Server.

What will this mean for the customer?

These new licensing agreement should therefore primarily " benefit "to European cloud providers and users operating in MS environment, but not to customers using AWS and Google infrastructures, nor for operators offering multicloud or those offering other cloud stacks competing with Microsoft.

The main risk for european cloud providers and for the end user as well, is to be even more locked in the the MS product range. First, because licensing rules increases the cost of running programs like Windows and Office on AWS and Google clouds.

Secondly, because regarding authentication systems, the Redmond firm is not committed to open standards, which might put Azure Active Directory in the shade.

What was announced yesterday not only shows no progress in addressing Microsoft's anti-competitive behavior, but may add new dependencies that further lock in customers and arbitrarily exclude cloud infrastructure providers. Francisco Mingorance, General secretary, CISPE.

Between paying less on an Azure Cloud or paying less for Microsoft solutions hosted by an European CSP, which not put Microsoft at risk: the options are indeed limited.

In fact, it appears that in an increasingly competitive market, where differentiation margins are quite low, Microsoft has made the choice to no longer fight for every single euro of cloud. Another reason is that Microsoft has realized that getting European cloud providers on its side will give it more leverage in the battle against its main rivals.

In any case, it is not sure that European cloud providers will benefit from this strategy.

Access the full reaction and analysis of the CISPE

The CISPE is a non profit association of cloud providers which promotes a European public procurement policy that favors cloud computing and is committed to a European digital single market, in particular by promoting high-level rules/standards for security and data protection and by avoiding cloud providers lock-in.