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When Microsoft Products Move to the Cloud, Licensing Costs Rise, Too

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by Louis Pellegrino
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Microsoft first announced Office 365 in 2010 – making its first major move in its stated ten-year transformation from a product manufacturer to a service provider. Since then, it has continued its reinvention, and by 2020, it will have fully remade itself. What does this mean for its customers?

The company’s July 2015 release of Windows 10 ushered in “Windows as a Service,” an offering it claimed would come with a stable and predictable service and support cycle. Until the release of Windows 10, most if not all enterprise customers could choose whether to enroll or renew Software Assurance (SA) on Windows Enterprise with little to no consequence. As “Windows as a Service” began to evolve, the support model went through a series of changes and over time became the Semi-Annual Channel (SAC).

Under the SAC support model, customers can no longer treat Windows Enterprise as a traditional software product and must maintain SA, otherwise they will be licensed a version of Windows Enterprise running the Long-Term Service Channel (LTSC) option, which will not be interoperable with Office 365. 

Later this year, Microsoft plans to release what will likely become the last version of traditional Office Professional Plus. It’s already known that this version 2019 is not the feature equivalent of its counterpart Office 365 Pro Plus (currently running version 2016) and that rigid dependencies must be in place to deploy the product.

Absent with this latest version of Office Professional Plus is the MSI installer, which has been replaced with the “click-to-run” (C2R) method used with Office 365. In effect, this eliminates deployment options that organizations have traditionally used to customize their installations and forces the installation profile of Microsoft’s choosing. Moreover, Office 2019 will not install on devices that have not been upgraded to Windows 10.

This should come as no surprise to anyone who has been following the Microsoft roadmap, which most surely limits SA options for customers beginning in 2020.

The venerable Office 365 hosted services will begin discriminating against users who attempt to access services such as Exchange Online, SharePoint Online and Skype for Business Online (Productivity Workloads) if their version of Office Professional Plus is older than version 2019, or if the existing Office 365 ProPlus client is not on the current build.

In addition to the accessibility limits being applied to the version of Office in use, even the restricted versions of Office will have installation dependencies; only the SAC version of Windows 10 will be permitted to interoperate with Office 365 beginning in 2020.

Also by 2020, Microsoft plans to fully harden its Windows franchise, including both client and server services, such that on-premise services will run only on the most current version, which is expected to be Windows Server 2019. Office Professional Plus, which today can be deployed as a Remote Desktop Application, will also be restricted to Windows Server 2019.

Microsoft’s traditional selling strategy, which has featured hybrid service delivery supporting it productivity workloads across both the customer’s datacenter and the Office 365 service, also will change beginning in 2020 with many customers losing their ability to interoperate between their Office 365 tenant and their on-premise servers unless they upgrade their on-premise servers to the most current version.

As an aside, upgrades to products like SharePoint Server (SPS) involve more than just the SPS bits; they also will require an update to the latest underlying SQL Server version as well, which can spawn any number of application compatibility issues and/or forced hardware obsolescence.

The operational impact of this – and other planned changes at Microsoft – is that customers will face upgrades they may not be completely ready for, including:   

  • Windows Enterprise updates that will take place with a frequency no greater than every 18 months, otherwise they risk becoming inoperable with Office 365.
  • Windows Server updates that need to be built into 2019 project plans so both Microsoft’s productivity and remote desktop services can continue uninterrupted.
  • On-Premise Productivity Server updates (including Exchange, SharePoint and Skype for Business) that need to start now if organizations hope to maintain hybrid deployment models going into 2020.

The business impact of these and other expected changes at Microsoft between now and 2020 is simply this: doing business with Microsoft is getting more expensive. Here are the facts:

  • Upgrade dependencies will force increased spend both for licenses and internal project overhead
  • Discounts, once plentiful for new online customers, are being “clawed-back” at renewal.
  • Customers wishing to retain SA versus migrating to alternative online options can expect no pricing concessions whatsoever.
  • Premier Support will be retired effective July 1, 2018, and replaced with Unified Support, which is directly tied to an enterprise’s license spend and can result in increases of 100 percent or more.

We recommend the following:

  • Expect to upgrade to the latest versions of Windows 10 and Office if you use Office 365 hosted services or other software that is approaching the end of Microsoft’s five-year Mainstream support.
  • Understand your entire catalog of deployed software and start planning and budgeting for migration to the latest versions of Office, Windows and other servers before 2020 – or immediately begin investigating viable alternatives.
  • Take a “bottoms-up” approach and build on the above points to generate your own Office 365 bill of materials, especially if you are in the early stages of migrating to Office 365. Do not depend on Microsoft to propose a solution that works for you.
  • Budget for the impact of the upcoming Unified Support model and keep it in mind when negotiating licensing agreements.

ISG helps enterprises negotiate licensing agreements with Microsoft and other software vendors so they get the most out of their software investments. Contact ISG to discuss how we can help you.

About the author

Louis joined the ISG team in early 2014 after nearly 20 years with Microsoft Corporation. Louis has compiled a track record of Enterprise client success underpinned by customer focus, strategic thinking, organizational agility, problem-solving acumen and impactful knowledge transfer which has established his reputation as a Microsoft licensing expert.

During his time with Microsoft, Louis worked in both the Consulting Service Group as a Practice Manager and in the Worldwide Licensing and Pricing Group as a Director responsible for designing and negotiating Global Volume Licensing relationships. As a highly effective and influential communicator/negotiator, Louis has delivered consistent business results across both revenue and quality of service performance targets.

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