As Microsoft Marches Into Cloud, Its Already Complex Licensing Gets Even More Baffling

Earlier this month, when Microsoft executive Therese Connor told a gathering of partners that Microsoft's software licensing was "dizzying," she was talking about the explosion of product numbers, or SKUs, that arrived with Office 365.

As Microsoft pushes hard into cloud services and subscription revenue, it's aware that some customers are not ready yet. By adding a wide range of new licensing options that cover both cloud and on-premise software, Microsoft believes it's letting everyone move to the cloud at their own speed.

This seems like a logical approach, but licensing experts say Microsoft's licensing, which was already difficult for customers to navigate, has grown much more complex.

[Related: Microsoft To Partners: Our Licensing Is 'Dizzying,' But Don't Let Your Customers Defect To Google Apps ]

Before Microsoft launched Office 365 in June 2011, its Enterprise Agreement (EA), a volume licensing plan for large customers, included six products: Office, Windows client, Client Access License (CAL) Suites, Desktop Platform bundles, and subscriptions for desktop optimization and desktop virtualization.

After Microsoft launched Office 365, its SKU list saw a significant expansion.

Microsoft added new SKUs for the various Office 365 plans, as well as Windows Intune; Bridge CALs, a new type of license designed to help customers adopt cloud services; and the Companion Subscription License (CSL), an add-on that covers access to corporate desktops on up to four mobile devices.

So, how many new enterprise SKUs are there?

Before Office 365, Microsoft had 46 enterprise SKUs. After Office 365, this figure ballooned to 177, of which Office 365 and related cloud products such as Windows Intune account for 125, according to Paul DeGroot, principal analyst at Pica Communications, a Microsoft licensing consultancy in Camano Island, Wash.

Some Microsoft customers whose Enterprise Agreements are now coming up for renewal haven't yet seen the new SKUs. DeGroot predicts that some will be baffled by the expanded range of offerings.

"It's very hard work just figuring out what to buy, in what quantities," DeGroot said. "It was hard enough to figure this out before. Now?"

Tim Hegedus, senior analyst at Miro Consulting, a Woodbridge, N.J.-based firm that helps customers with Microsoft licensing, says confusion can occur when customers see the big list of SKU numbers Microsoft presents during the inception or renewal of an Enterprise Agreement.

Hegedus told CRN he has seen cases in which customers, confused by the multitude of options, have mistakenly bought more than one license for a single software product.

"The frustration for the customer lies in seeing multiple lines for the same number of licenses and not understanding how these line items interact or whether these license quantities are accurate," Hegedus said in an email.

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For services like Office 365, it's fair to wonder how much customers would be willing to spend, in terms of time and resources, to figure out the licensing when there are simpler alternatives.

Microsoft is aware that its complex licensing is causing some customers to ditch Office 365 and other cloud apps.

In an invitation-only meeting with partners last month at its Worldwide Partner Conference, Microsoft's Connor said some customers have been "overwhelmed" by the complexity of Microsoft's licensing.

Some are going to Google, which has just two SKUs for Google Apps, Connor said at the event.

In competitive situations where Microsoft is going up against Google, this could become a problem, Pica's DeGroot told CRN.

"When a customer brings Google and Microsoft in to talk cloud, the Google rep is in for two hours and the customer understands it," DeGroot said. "The Microsoft rep is in for two hours, and the customer is actually more confused than before."

Office 365 is "a good product," but Microsoft's attempt to straddle perpetual licensing for fat clients while moving customers to the cloud is "complicated," DeGroot said. "Google has no interest in either perpetual licenses or fat clients, so they don't need to consider any current customer licensing investments," he said.

Microsoft's licensing is so challenging to decipher, the company has seen fit to build licensing expertise into its channel program. Microsoft has a volume licensing competency in the Microsoft Partner Network and a Microsoft Certified Professional Credential for licensing.

One Microsoft partner, who requested anonymity because he also works with Microsoft competitors, says the explosion of SKUs is actually driving more business his way.

"The many options has made our expertise more valuable, because we understand the customer's pain points and business problems," the source told CRN.

Sometimes, a mix of different SKUs is the best way to go. "If a company needs advanced archiving features for a particular group of employees, but isn't going to use the Outlook client, we can mix and match licenses to fit their needs," said the source.

Microsoft's view is that having multiple licensing options is the best way to cater to its diverse customer base.

"Customers tell us that, when it comes to their productivity needs, one size does not fit all," a Microsoft spokesperson said in an emailed statement. "We have customers that span the smallest of businesses to the largest of enterprises across varying industries all of whom have different layers of complexities within their organizations.

Ultimately, all these different product numbers are "something of a necessary evil," said Miro's Hegedus. They allow the same Enterprise Agreement to be used for both on-premise products as well as cloud-based services. This reduces the number of agreements that the customer would otherwise have to manage.

If they're willing to put in the legwork of going through all the Office 365 SKUs, or work with a partner, customers can find exactly which features and functionality they need, and avoid paying for ones they don't.

Reed Wilson, founder and president of Palmetto Technology Group, a Greenville, S.C.-based Microsoft partner, says it's fairly easy to figure out which version of Office 365 is the best fit for a specific customer.

"It can be daunting," Wilson said of the Office 365 SKU list. "But if you ask the right questions, you can find out what they need pretty quickly."

PUBLISHED AUGUST 1, 2013