Microsoft and its hosting channel having a Cinderella issue
The success of the Microsoft hosting channel is largely based on the SPLA licenses. A simple, clear license model which is charged per month based on the used licenses reported by the partner. Based on mutual trust. The Datacenter editions in particular are attractive, as a result of which the volume advantage and thus the margin of further virtualization remain with the partner because the license is not tied to a specific customer.
With the introduction of the new Date Center SPLA Windows Sever 2019 licensing conditions, Microsoft has already begun to nibble on this volume advantage. In addition to the licensing of the physical processors per host, Microsoft has also added a license multiplier, the licensing of the OSE: Operating System Environment (read VM).
That, along with the annual increase in SPLA prices, betrays Microsoft's desire to willingly or unwillingly motivate hosting partners to migrate to Azure. There is a lot to be said for that. The Microsoft Cloud has so much more to offer than a rack containing some servers on which, with a lot of skill and effort, security, version management and support are arranged by a hosting partner. Despite that, most hosting partners still make a big living from this business and Microsoft is not making it very attractive financially to make the switch to Azure.
After all, SPLA licenses cannot be applied to the Azure Cloud, but strangely enough they can be applied to the 'dedicated host' environments of AWS and GCS.
A hosting partner developing its business on Azure has two licensing options. Purchase Windows Server and SQL licenses as part of the (pay-as-you-go) VMs. These prices are up to 90% more expensive than the SPLA licenses. Second option is to use CSP Subscription licensing with Azure Hybrid Benefit. The price levels are then close to the SPLA licenses.
However, there are two very big differences.
- The SPLA licenses are per month, the CSP Subscription license requires a commitment of 1 or 3 years. This removes the flexibility that makes a public cloud different.
- CSP Subscription licensing is bound per customer, ie if the customer drops out, the partner remains with the obligation.
The latter is typical of the paternalistic way in which Microsoft deals with its hosting partners. In this, Microsoft continues to deny that the hosting partners' business is based on creating a volume advantage over the largest possible group of customers.
You can also see this denial in:
- The need to manage each customer in their own Azure subscription, under penalty of losing your CSP margin.
- For that reason, hosting partners cannot set up their own 'PaaS' services, such as an SQL Cluster or an RDS-farm that can be used across multiple customers.
- In that context also Windows Virtual Desktop, a Microsoft PaaS service that must be setup for each specific customer including a separate domain controller per customer.
- Or the Reserved Instances discounts, which only apply with customer specific instances. As with the Subscription licensing bound, the 1 or 3 year commitment obligation must be imposed to the customer or the partner is forced to take the risk.
When writing this blog, the many annual Microsoft Partner global events come to mind where every key-note speaker highly rated the unique partner eco-system and its importance to Microsoft.
Dear Microsoft leaders: it has become time to put your money where your mouth is!
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Microsoft denies in their Azure pricing and licensing co.nditions, that hosting partners' business and profitability is based on creating a volume advantage over the largest possible group of customers.
This stops a lot of Hosting partners to make the final step to migrate their entire business to Azure.
Microsoft needs to stop customer-specific-licensing-binding on Azure and lift the licensing-agreement to the level of the CSP partner, independent of a specific customer.
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