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Did Microsoft Kill Perpetual Licensing?

Level 10

Continuing from my previous blog post, Meh, CapEx, I’m going to take a cynical look at how and why Microsoft has killed its perpetual licensing model. Now don’t get me wrong, it’s not just Microsoft – other vendors have done the same. I think a lot of folks in IT can say they use at least one Microsoft product, so it’s easily relatable.

Rant

Let’s start with the poster child for SaaS done right: Office 365. Office 365 isn’t merely a set of desktop applications like Word and Excel with such cool features as Clippy anymore.

clippy.jpg

No, it’s a full suite of services such as email, content collaboration, instant messaging, unified communications, and many more, but you already knew that, right? With a base of 180 million active users as of Q3 2019¹ and counting, it’d be silly for Microsoft not to invest their time and effort into developing the O365 platform. Traditional on-premises apps, though, are lagging in feature parity or in some cases changed in a way that to me, at least, seems like a blatant move to push people towards Office 365. Let’s look at the minimum hardware requirements for Exchange 2019 for example: 128GB memory required for the mailbox server role². ONE HUNDRED AND TWENTY-EIGHT! That’s a 16 times increase over Exchange 2016³. What’s that about then?

To me, it seems like a move to guide people down the path of O365. People without the infrastructure to deploy Exchange 2019 likely have a small enough mail footprint to easily move to O365.

Like I said in my Meh, CapEx blog post, it’s the extras bundled in with the OpEx model make it even more attractive. Microsoft Teams is one such example of a great tool that comes with O365 and O365 only. Its predecessors, Skype for Business and Lync on-premises, are dead.

  Now, what about Microsoft Azure? Check out this snippet from the updated licensing terms as of October 1, 2019:

Beginning October 1, 2019, on-premises licenses purchased without Software Assurance and mobility rights cannot be deployed with dedicated hosted cloud services offered by the following public cloud providers: Microsoft, Alibaba, Amazon (including VMware Cloud on AWS), and Google.

So basically, no more perpetual license on one of the big public cloud providers for you, Mr./Mrs. Customer.

Does this affect you? I’d love to know.

I saw some stats from one of the largest Microsoft distributors in the U.K., 49% of all deployed workloads in Azure that are part of a CSP subscription they’ve sold are virtual machines. I’d be astonished if this license change doesn’t affect a few of those customers.

Wrap It Up

In my cynical view, Microsoft is leading you down a path where subscription licensing is more favorable. You only get the cool stuff with a subscription license, while traditional on-premises services are being made to look less favorable one way or another. And guess what—they were usually licensed with a perpetual license.

It’s not all doom and gloom though. Moving to services like O365 also removes the headache of having to manage services like Exchange and SharePoint. But you must keep on paying, every month, to continue to use those services.

¹ Microsoft third quarter earnings call transcript, page 3 https://view.officeapps.live.com/op/view.aspx?src=https://c.s-microsoft.com/en-us/CMSFiles/Transcrip...

² Exchange 2019 system requirements https://docs.microsoft.com/en-us/exchange/plan-and-deploy/system-requirements?view=exchserver-2019

³ Exchange 2016 system requirements https://docs.microsoft.com/en-us/exchange/plan-and-deploy/system-requirements?view=exchserver-2016

⁴ Source, Microsoft licensing terms for dedicated cloud https://www.microsoft.com/en-us/licensing/news/updated-licensing-rights-for-dedicated-cloud

15 Comments
MVP
MVP

Yes, seems to be the case. Great for their revenue streams not so good for the customers.

Level 14

Thanks for the article!

Level 11

Anything that starts with a RANT has to be good thanks for the midweek smile!! and for Sure Microsoft is driving it's customers down a path that suits Microsoft.  It's a unique entity in this world in that they can get away with that. many years ago there was competition in the office suite application world.  MS played "not nice" and eliminated the competition (or reduced it to insignificance).  until that is fixed MS is driving the bus and we are just sitting there looking at whatever they want us to see out our windows.

Level 16

It only makes business sense for them to go that path. It's way better for them to permanently 'lease' the service to business that to sell the product outright.

Citrix is also pushing users into subscription-based licensing. It's getting harder to find vendors that aren't moving toward this revenue-favoring model.

Not two months into his job as CFO of Citrix, Arlen Shenkman is speeding the software company's transition from a perpetual- to a subscription-based licensing model, a move that will likely lead to more headwind against the company's profit and loss (P&L) statement until sometime in 2020.

from https://www.cfodive.com/news/citrix-cfo-subscription-model-workspace-platform/565870/

MVP
MVP

Thanks for the article.

Level 12

They won't make as much money if you don't subscribe so I'm surprised it took this long for Micro$oft to do this.

Great way to say "You must pay forever!"  to drive people to alternatives

Level 13

Thanks for the Article.

Cisco charges more and more for licenses that enable functionality.  Why not MS?

Level 12

yes they're killng perpetual licensing because subscriptions allow microsoft to earn more money.

Level 13

Absolutely agree.  Just about every vendor is doing it, and some are getting downright obnoxious about it.  There are some niche services that we use that are pushing this so hard it's obvious that someone up top has decided that this will be a great new revenue stream for them.  However, just because Microsoft can pull it off are largely deliver a really good product (referring to O365 here - which has been one of the better cloud products we've used) not everyone has the resources and technical chops to do that.  If they are not careful they will find that change also introduces an opportunity to completely reevaluate and change directions.

I remember when subscription was first tried back in the late 80's with mainframe software (dating myself I know) it was a disaster.  The idea was that you didn't have to buy some of the insanely expensive software, just rent it.  Didn't work in a big way.  Seems like we're heading down that road again.

Level 14

I'm with brianj​   seems that MS is late to the game on this.... perhaps by design as they have hooked everyone on O365.

Level 14

Yep, many vendors have gone this route.  Guess what.  It's more expensive to us poor customers and we don't really see any benefits.  It's just harder to manage.

I think they will still offer Volume licensing for companies for a long time.   The very popular E1 license is great but the cloud apps are limited and if there is no internet they do not work.   We purchase Microsoft Volume Licensing Agreements all the time, so we can utilize the 13K+ E1 licenses.  In a conversation the other day we tried to guess of our budget was paid to microsoft for licensing.   Not just the E1, E3 and E5 licensing, but all the other software, it's about half or somewhere thereabouts.....

For an individual it doesn't make sense to purchase OEM or boxed applications.  I would much rather pay the $99 a year for my office on 5 devices, and never worry about it vs having it installed here there and under utilizing it on a PC i rarely use and then having to spend more on a different PC, etc.   I am all for OSaaS, OfficeaaS, etc.   I on a personal level it takes the management away for what is about an equivalent price.   I don't even notice my $99 fee any more.  I make it part of my annual budget and away I go.  we have a great rate with microsoft at the corporate level so what most people pay per month, we pay per year roughly.   This enables us to have the tools we need, and maintain compliance.   The only issue we really face is over spending.