On the list of items that IT pros would rather never have to think about, software licensing takes a close second behind backups. Holding frequent license compliance checks and ensuring that licensing is purchased as it's needed is frequently a challenging, time-consuming process. All too often, these tasks are neglected, leaving many enterprises open to substantial legal liability.
As I've noted before, the licensing landscape is no better when you move into the cloud. In fact, it grows substantially more confusing, both for users and for the cloud providers seeking their business.
Most enterprises purchase their Microsoft software through one of Microsoft's volume licensing mechanisms, such as the Open Business, Open Value, Select, and Enterprise agreements. These licensing plans all differ in various respects -- primarily in terms of what kind of discount is granted (usually based on volume), how payment for the software is spread out, and whether the software is licensed as a subscription or as a permanent license. Regardless of which licensing channel you buy through, you're essentially buying the same usage rights, and you're always responsible for complying with the agreement's terms.
How Microsoft's cloud licensing works in the cloud
That equation changes entirely when you move to the cloud. If you read the fine print of the license agreements that you agree to when you install the software you've bought for your on-premises environment (we all do, right?), you see that most licenses require that the software be installed on hardware you own. Although you could install that software on your own hardware even if it's squirreled away in a colocation center, you're not allowed to install it on a public cloud such as Amazon's EC2 (at least not without jumping through some hoops first -- more on that later).
Of course, there are legal ways to run Microsoft software in the cloud. The primary mechanism is through the SPLA (service provider licensing agreement). Cloud service providers sign an SPLA, so they can effectively rent Microsoft licenses to their customers. A cloud service provider can license its server farm for Microsoft Server, stand up a wide range of Microsoft products on its gear, then allow you to access those Microsoft applications.