Microsoft's secret licensing deal with OnLive

A Microsoft MVP resigns in disgust as his attempts to find out the details about OnLive licensing are snubbed

Last week InfoWorld's Galen Gruman wrote a scathing review of OnLive Desktop, the free iPad app that puts the Windows 7 desktop and Word, Excel, and PowerPoint 2010 all on your iPad -- for free.

That last bit really drew my attention. Free? How on earth could a company offer free access to Windows and Office 2010 apps ... not charge anything?

I downloaded and tried the app, and I came away unimpressed for many of the same reasons that Gruman describes. But I couldn't fathom how OnLive could offer the app and the service for free. Maybe it's the old deal where you lose 10 cents on every connection but make up for it with the volume. Maybe the company had some advertising scheme in the wings. But the Microsoft licensing costs alone must've cost a fortune.

Or did they?

I don't claim to know much at all about Microsoft Virtual Desktop licensing, much less Service Provider License Agreements, but it doesn't make sense that OnLive could be opening the floodgates and running thousands (tens of thousands? hundreds of thousands?) of concurrent Office sessions without running up a bill that would subsidize a small country.

Last week Brian Madden, who's been a Microsoft MVP in Remote Desktop since 2004, quit the MVP program in disgust. In his swan song post, Madden talks about how he's tried to get Microsoft and OnLive to describe their licensing agreement. Not the details, mind you -- just the basic outline of what kinds of licenses they're using.

No luck. Nobody would say anything.

The licensing quandary goes like this: None of the standard Microsoft licensing packages allow a desktop-as-a-service provider (such as OnLive) to buy a bunch of licenses to handle virtual access to a single big server farm. The way Microsoft licenses currently work, a DaaS provider has to get licenses (or convince their customers to buy licenses) for each individual and each device they may use to access the server. There are additional hardware requirements that make it all very expensive. The devil's in the details, but the bottom line is that Microsoft's current licenses don't allow any DaaS to get a group discount covering, say, the maximum number of concurrently logged on users. They have to have one license per customer, per device.

Madden says, "I got absolutely nowhere. They supposedly said that they were escalating [the issue], but that was more than a month ago and I've heard nothing. So not even Microsoft can explain what's happening even though it definitely looks illegal from the outside and all the other cloud DaaS providers are claiming that something is going on."

If you're a DaaS provider who's potentially competing against OnLive, that's a very bitter pill to swallow. Unless, of course, OnLive is paying the same fees everybody else is paying -- but that seems highly unlikely given the numbers involved.

Microsoft can play favorites with any organization it chooses, of course, and it would make sense to cut a deal with a company that uses technology Microsoft is interested in acquiring. But it's hard not to feel some empathy for companies that have been hoeing this row for years.

A little bit of transparency would go a long way.

This story, "Microsoft's secret licensing deal with OnLive," was originally published at Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest developments in business technology news, follow on Twitter.