Microsoft Slaps Tax on Taking Its On-Prem Licenses to AWS, GCP

The change, together with a new discount, greases the wheels for its new dedicated host service.

Yevgeniy Sverdlik

August 6, 2019

3 Min Read
Microsoft CEO Satya Nadella, speaking at Build 2016
Microsoft CEO Satya Nadella, speaking at Build 2016Justin Sullivan/Getty Images

Microsoft recently announced a new dedicated host service on Azure. Accompanying that announcement was a change in its on-premises software licensing rules, making some of its most widely used enterprise products a lot cheaper to run on its new dedicated servers than using comparable options offered by its biggest rivals.

While the world’s second largest cloud provider positioned the change as simply a matter of updating its licensing scheme to reflect a changing market, it gives a clear cost advantage to running Microsoft software on Azure.

The market change Microsoft cited was the gradual replacement of traditional IT infrastructure outsourcing services with public cloud ones. Traditionally, a customer has been able to use a license for Windows Server, SQL Server, or another Microsoft product in their own data center, including if the data center is managed by an outsourcer.

If they move those workloads to dedicated (single-tenant) hosts in the public cloud, they’ve been able to use the same on-premises license without being charged additional fees, treating the cloud provider the same as a traditional outsourcer. This “Bring Your Own License,” or BYOL, practice has taken a lot of friction out of the immensely difficult process of moving enterprise applications from on-prem data centers to the cloud.

Under the new rules, starting this October, the biggest cloud providers (Azure included) will no longer be treated like traditional outsourcers as far as on-prem licenses are concerned.

If you want to run on-prem Microsoft software on a dedicated hosted cloud service by Amazon Web Services (Including VMware Cloud on AWS), Azure, Alibaba Cloud, or Google Cloud Platform, you’ll have to pay additional fees on top of the standard license cost. No changes if you’re using any other cloud provider.

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But Microsoft will give you a steep license discount if you bring your on-prem Windows Server or SQL Server licenses to Azure. The discount, called Azure Hybrid Benefit, can cut your total cost for running Windows Server VMs by more than 40 percent, for example, the cost of SQL Server VMs by as much as 75 percent, and SQL Database by 35 percent, according to Microsoft.

The announcement prompted an angry tweet from AWS CTO Werner Vogels, who said Microsoft was pulling a “bait and switch” and “restricting freedom of choice.”

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Respondents to the tweet promptly pointed out a few of AWS’s own business practices that don’t exactly promote freedom of choice, such as charging exorbitant network fees for transferring data out of AWS and routinely turning open source technologies into paid cloud services, squashing attempts by cloud startups to build businesses around those technologies.

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Microsoft’s new licensing rules apply to all its on-premises software being deployed on dedicated cloud hosts sold by the providers listed above. Companies can use existing licenses in those clouds without change beyond October 1st, but they’ll have to cough up the extra dough if they want to add workloads or upgrade to new releases.

The new Azure Dedicated Host, which Microsoft started previewing last week, gives customers dedicated physical servers to run Linux and Windows VMs. Because the service is specifically for those two types of VMs, it is not a bare-metal cloud service.

In another play to discount the use of its own software on its own cloud infrastructure, Microsoft is allowing customers with Windows Server Datacenter licenses to deploy as many Windows Server VMs on a single dedicated host as the box can handle, with no impact on their cost.

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