Microsoft has confirmed to update the licensing terms related to outsourcing rights and dedicated hosted cloud services which will come in affect per October 1st 2019. This update will impact all new and/or renewal Enterprise Agreements and MPSA’s from October 1st 2019 onwards and might impact your decision (not) to renew Software Assurance on On-Premises datacenter licenses like SQL Server or System Center. This change won’t impact the use of existing/previous software versions under licenses purchased before October 1, 2019

Current situation:

Today Microsoft allows the use of your “On-premise” licenses purchased through any Volume licensing contract (e.g. EA, EAS, Select Plus, MPSA) to be used in 2 scenarios other than in the “standard”on-site, on-premise and self-managed setup:

Scenario 1 – Outsourcing Software Management

“Customer may install and use licensed copies of the software on Servers and other devices that are under the day-to-day management and control of third parties, provided all such Servers and other devices are and remain fully dedicated to Customer’s use”….

This applies to licenses with or without Software Assurance. The emphasis here is on the fact that the server (a physical hardware system) must be dedicated to a client’s use – in other words, a dedicated VM is not considered a dedicated device.

Scenario 2 : License Mobility through Software Assurance

“Under License Mobility Through Software Assurance (SA), Customer may move its licensed software to shared servers under any of its Licenses which are designated as having License Mobility for which it has SA”…

If a Cloud provider provides a service/VM in a shared environment (hardware resources shared with multiple customers) the Volume licenses can be used to cover software usage that applies for License Mobility Through Software Assurance. This allows customers to benefit from their (discounted) Volume Licenses with active Software Assurance. This (or similar) benefit applies for many products such as SQL Server, System Center, MSDN (Azure only) licenses but it does not apply to Windows Server. Running Windows Server in the Cloud is not allowed except on Azure through a different benefit called Azure Hybrid Use Benefit (which also requires Software Assurance).

“Grey Area”

If a Cloud provider provides a dedicated environment (hardware dedicated to a single customer) the Volume licenses can be used to cover the software usage without the requirement of Software Assurance. This allowed customers to benefit from their (discounted) Volume Licenses and even legacy licenses. This has long be viewed as a “grey area” and Microsoft in their announcement call it a “blurry” area.

It is interesting that Microsoft have – as part of their announcement – confirmed the above as in the past such a confirmation was hard to obtain from Microsoft directly. Now it’s addressed with a Change of Rules.

The Update for licenses purchased from October 2019 onwards (and versions released post October 2019)

New On-Premises licenses purchased without Software Assurance after October 1, 2019 and therefor without mobility rights, or existing licenses with SA used for deploying a new version released after October 2019 cannot be deployed with dedicated hosted cloud services offered by the following public cloud providers (“Listed Providers”):

  • Microsoft
  • Alibaba
  • Amazon (including VMware Cloud on AWS)
  • Google

This means the outsourcing terms no longer apply for the Cloud providers listing above. Even if they provide a dedicated environment, clients can only benefit from License Mobility and the limited License Mobility eligible product set for any new licenses purchased after October 2019 or new version released after October 2019. In other words – in the future Software Assurance will be required. Existing deployments should not be affected provided no additional licenses are required and that no upgrades beyond version “post October 2019) are performed.

Biggest impacts on clients:

  • Costs for licenses run on dedicated hosted cloud services will increase due to the requirement to purchase Software Assurance for them to be deployed under License Mobility Rights
  • Windows Server: Whilst Windows Server licenses without Software Assurance were allowed under the “old” outsourcing terms, with the change this will no longer be possible. Because Windows Server does not offer License Mobility rights and because the Azure Hybrid Use Benefit only applies to Windows Server licenses deployed on Azure, this means it will not be possible for clients to buy their own Windows Server licenses and deploy them on a non-Azure Cloud.

Further, as part of the launch of Azure Dedicated Host Services, Microsoft have just announced to extend the Azure Hybrid Use Benefit (The benefit to allow Windows Server licensed with SA to be run on Azure) to allow for use on Azure Dedicated Hosts – this means that rather than licensing each Core / VM , if a client can license all cores of a dedicated host with Software Assurance acquired under their own contract and not pay for the Windows Element of the Azure Dedicated Host under Azure. Licensing the Azure Dedicated Host covers any VM running on it (unlimited virtualization). The option to license the Azure Dedicated Hosts for unlimited virtualization also applies for SQL Server

These two announcements combined effectively have increased prices for clients to run Software on non-Azure dedicated hosts, removed the ability to run Windows Server on non-Azure cloud Services and extended the licensing mechanisms for Windows Server running on Azure dedicated servers. The affected cloud providers have expressed their concerns already it remains to be seen how this will further develop

If you would like to know more about the possible implications of this update to your organisation and your Microsoft licensing strategy, then please send me a private message and we will reach out to you to discuss. More information about the upcoming change can be found on https://www.microsoft.com/en-us/licensing/news/updated-licensing-rights-for-dedicated-cloud

 

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