New Microsoft license agreement could drive up costs

New Server and Cloud Enrollment program streamlines options, but some enterprises may pay as much as 40 percent more for critical offerings

This week, Microsoft debuted its new Server and Cloud Enrollment (SCE) licensing program, replacing the popular Enrollment for Core Infrastructure (ECI) and Enrollment for Application Platform (EAP) programs.

The new program streamlines options, but may lead some enterprises to pay as much as 40 percent more for critical Microsoft application and infrastructure offerings, according to one IT spend management consultant.

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Microsoft's new Server and Cloud Enrollment

Designed for "highly committed" customers, SCE is intended to provide new cloud-optimized licensing options, simplified license management, and the best pricing and terms. But that doesn't mean you'll be paying less, says Jeff Muscarella, executive vice president of the IT and Telecom Division at NPI.

"Everyone who makes heavy use of ECI and EAP today under their Microsoft agreements should take a look at this," he says. "Take a look and see if it's worth renewing for another three years under those terms."

For some enterprises, the new program may make sense. Others may find that it will be more advantageous to license their Microsoft applications and infrastructure through a select agreement. It may also be worth seeking to renew the existing ECI or EAP terms for another three years before they expire.

SCE offers best Windows Azure terms and pricing

SCE is a new three-year Microsoft Enterprise Agreement that allows customers to standardize on one or more Microsoft Server and Cloud technologies. It's not a minor commitment. To enroll, customers make an installed base-wide commitment to one or more components -- a commitment to full Software Assurance (SA) coverage across the installed base of an SCE component, and, in the case of System Center, committing to full System Center coverage on their Windows Server installed base through Core Infrastructure Suites (CIS).

In return for this commitment, Microsoft says customers will receive significant incremental value and benefits, including the following:

  • A 15 percent discount on License and Software Assurance (L+SA) products, 5 percent off SA products and 5 percent off Azure when another component is included.
  • New subscription-based licensing options alongside perpetual licenses that give customers access to more flexibility when they need to retire workloads, consolidate or migrate to the cloud.
  • Incremental rights for CIS committed customers to use System Center to manage Azure virtual machines and resources at no additional cost.
  • Microsoft Premier Service's customers may also qualify for unlimited problem resolution support for SQL Server, Windows Server, and System Center, BizTalk Server and SharePoint Server.
  • All the benefits of SA, including access to License Mobility for many Microsoft applications, enabling more seamless migrations to the cloud.

Microsoft says the new program is designed to build a standardized and high-value licensing foundation for customers adopting its server and cloud technologies. It will provide new and more flexible Azure terms, better Azure pricing, application license mobility to the cloud through SA, new System Center benefits for managing Azure resources and new subscription options.

4 things enterprises should know about SCE

But NPI says there are four things enterprises with existing ECI or EAP investments should know about SCE:

  • In most cases, the SCE discounts are lower. Under EAP, customers received a 40 percent discount off L+SA. Under ECI, the discount was 20 percent. Under SCE, the discount drops to 15 percent.

For SA renewals, SCE offers a 5 percent discount. This is actually a welcome change for EAP customers who received no discount for SA. But it's a drastic decrease for ECI customers who previously received a 20 percent discount for SA renewals.

  • Minimum commitments are higher. Under ECI, enterprises had a minimum commitment of 25 licenses. The SCE program, on the other hand, requires all Windows Servers in the customer's environment be covered.

Customers can no longer pick and choose which servers to add to the agreement. "The minimum commitments are higher, which is probably the one people aren't going to catch onto, at least initially, Muscarella says. "It used to be you didn't have to license all your Windows Servers. Now they require you to license your entire footprint. It could be quite a bit more. If you're in an environment where you were only licensing a small number of your Windows Servers, this could be a big issue for you."

  • The negative cost impacts of SCE are in addition to Microsoft's recent price increases. NPI says customers may feel that SCE is adding insult to injury based on price hikes to a number of offerings: Pricing for Windows Server 2012 R2 Datacenter Edition is up 28 percent; SQL Server Client Access License (CAL) pricing is up about 25 percent; SharePoint Server costs have increased by 38 percent.
  • The costs built into SCE mean Azure isn't as cheap as it appears. "Don't be fooled by the lure of Azure," NPI says. Under SCE, you'll get access to Azure at the best available pricing and management of Windows Azure will be included for certain Core Infrastructure (CIS) commitments. Instead of paying directly for Azure, NPI says, customers will instead by paying indirectly through the lower discounts offered by SCE.

"By all accounts, Microsoft appears to be just shy of giving Azure away to customers," NPI says. "It's a familiar tactic from Microsoft's go-to-market playbook. Give the product away (or charge very little), embed it into the enterprise, capture market share and raise prices. The rise of SharePoint can be attributed to this strategy."

"Depending on your mix of Microsoft products, the impact of SCE replacing EAP and ECI could increase your costs 20 percent to 40 percent," Muscarella says. "Until you go through and look at your existing environment and counts, it's hard to understand how these price increases could impact you."

For its part, Microsoft says that customers that want to only partially cover their environments with CIS can easily do so through other volume licensing programs that have no dedicated contracts or unit minimums.

"EAP customers can continue their installed base-wide commitment to SQL Server, Visual Studio, BizTalk Server and SharePoint Server in the SCE," Microsoft says. "Customers will see some small pricing changes as we standardize and simplify discounts. Among these changes are a new five percent discount on Software Assurance, a slightly higher discount vs. EAP standard products and a slightly lower discount vs. EAP premium products. Unlike EAP, which provided discounts on only the license portion of L+SA SKUs, SCE provides a full 15 percent discount on the complete L+SA SKUs for key components."

Additionally, new subscription options replace the concept of "deferred licenses," which Microsoft says means that old units can now be covered with subscription or added as new L+SA at signing. The subscription allows customers to flexibly retire those deployments annually as they consolidate workloads or move them to the cloud.

Thor Olavsrud covers IT Security, Big Data, Open Source, Microsoft Tools and Servers for CIO.com. Follow Thor on Twitter @ThorOlavsrud. Follow everything from CIO.com on Twitter @CIOonline, Facebook, Google + and LinkedIn.

This story, "New Microsoft license agreement could drive up costs" was originally published by CIO.

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