An upcoming change to Microsoft’s licence terms is likely to have a major impact on customers of some cloud services. The updated terms are due to come into effect on 1 October 2019, and will affect customers running Microsoft software on dedicated public cloud platforms operated by Amazon, Google, Alibaba or Microsoft (referred to by Microsoft as ‘Listed Providers’). (The list does not include Oracle, leading to some speculation that this may be due to the recently announced ‘cloud interoperability partnership’ between the two companies.)

At present, customers running MS software on these cloud platforms are able to rely on a term in their MS licences which allows on-premises customers to deploy MS software on hardware leased from and managed by ‘traditional outsourcers’. The term – which permits use of software on hardware that is ‘under the day-to-day management and control of third parties’, provided the hardware is ‘fully dedicated’ to the customer – is broad enough to apply to deployment of MS software on dedicated public cloud platforms.

Services affected will include Azure Dedicated Host, Amazon EC2 Dedicated Hosts, VMWare on AWS, and single tenant nodes from Google.

Once the change comes into effect, customers who want to run MS software on a Listed Provider’s dedicated hosting platform will need to either purchase licences direct from a Listed Provider that participates in Microsoft’s SPLA (Software Provider Licence Agreement) program, or use its MS licences with software assurance and mobility rights (if the Listed Provider is also an ‘authorised mobility partner’).

Azure customers will additionally be able to use their MS licences with software assurance with the updated ‘Azure Hybrid Benefit’, allowing customers to offset at least some of the additional cost of the change in terms by using Azure as their chosen cloud platform – unsurprisingly this has led to accusations from Microsoft’s competitors of old-school ‘vendor lock-in’ tactics.

The change will not affect customers using existing software versions under licences purchased before 1 October 2019, and while the changes do not apply to hosting providers that are not a Listed Provider, they do apply to third parties that ‘resell’ dedicated hosted cloud services from a Listed Provider.

The changes will potentially have significant financial implications for customers currently using dedicated AWS, Google or Alibaba cloud services to host their Microsoft products (as the changes will apply to product upgrades released after 1 October 2019), and for customers planning to switch to a dedicated cloud platform in the future.  Companies planning to implement changes to their outsourcing, hosting or cloud strategy should therefore revisit underlying business cases to factor in any additional licensing charges likely to arise as a result of the upcoming change, and to confirm that their strategy continues to make sense commercially.

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