Microsoft to change Windows Server 2016 licensing rules, will use per-core metric

Microsoft last week announced it will switch the licensing for next year's Windows Server 2016 to a per-processor-core basis, a move analysts said is at least partly a grab for more revenue.

"Ultimately, the move to cores is a revenue issue, because it certainly does nothing for customers," said Paul DeGroot, the principal of Pica Communications, a consulting firm that specializes in deciphering Microsoft's licensing practices. "Customers have to go through a complex process to count cores to make sure they get all the cores they are entitled to. If they don't do this properly, they'll face a large bill down the road."

Wes Miller, an analyst at Directions on Microsoft who conducts the research firm's "boot camps" on Microsoft's complex licensing rules, agreed -- to a point. While he believes Microsoft's stated reasons for changing licensing for Windows Server 2016 are valid, there's more to the new policies than what Redmond said publicly.

"It's important to understand that this change allows Microsoft to have pricing that grows as [customers'] datacenter capacity grows," Miller said.

In documentation published last week, Microsoft announced that it would change licensing for Windows Server 2016 -- adding that it would ship the software in the quarter ending in September -- from the prior per-processor basis to per-physical-processor-core. A quad-core processor-powered server, then, will count as four cores.

"Core-based licensing provides a more consistent licensing metric regardless of where the solution is deployed, on-premises or in a cloud," Microsoft stated in a data sheet for the new System Center 2016 that Miller spotted last week. (Windows Server 2016 and System Center 2016 will be licensed identically.) Microsoft will sell licenses at the rate of eight cores minimum per processor, 16 cores minimum per server. Microsoft sells licenses for Windows Server 2012 R2 -- 16's predecessor -- in two-processor packs.

In a FAQ covering the licensing changes, Microsoft elaborated on its rationale for the per-core move, referring to a "common and consistent licensing denomination" before again touting the blend of cloud-based and on-premises deployment.

"The change to core-based licensing is one of several steps Microsoft is taking to evolve our server licensing to support hybrid cloud," the FAQ said. "For example, in October 2015 we announced an Azure benefit whereby customers with Windows Server licenses with SA are eligible to upload their Windows images to Azure and pay only the compute rates."

Windows Server 2016 will still require CALs (client access licenses) for each user or device that accesses the server.

Miller said there's truth to what Microsoft said about why it changed the rules, pointing out that with per-core licensing, it would be easier for enterprises to rely on Microsoft's Azure cloud-based platform for disaster recovery of on-premises servers and data centers, including switching to Azure until physical systems are back up and running.

"I do understand and agree with their argument of a 'common currency,'" Miller said of hybrid cloud- and on-premises setups. "This is a huge start for disaster recovery in Azure. It was hard to figure that out before."

But price increases are a factor in the move, Miller asserted. "More than eight cores per processor, your price will be going up," he said. "There's definitely a segment of the market which will pay more."

In particular, Miller cited the very low end -- where licenses for 16 cores would be mandatory for a small server -- and the very high end, where customers are running processors with massive numbers of cores, as those most likely to get hit in the wallet by the change.

Microsoft, not surprisingly, has said nothing about increased revenue as a motivation for the licensing changes, but instead argued that most customers will pay the same. In a chart on the data sheet, it said licensing costs for Windows Server 2016 would be the same as for Windows Server 2012 R2 in most cases.

But there are several ways that per-core licensing could easily result in customers writing larger checks, and Microsoft cashing them for a boost in server software revenue, said DeGroot, who based his analysis on working with clients on SQL Server licensing. Microsoft switched to per-core licensing for SQL Server with the 2012 edition, and while there are differences between its policies and the ones for Windows Server 2016 -- SQL Server's licenses also take into account "hyper threads" on multi-core processors, while Windows Server 2016's do not -- he thought many of the problems introduced three years ago would haunt customers licensing Windows Server 2016 next year or when their current agreements expire.

"This pricing will force customers to overpay for Windows Server or for SQL Server in some cases," said DeGroot. "Since the most licensing-efficient SQL Server today has only four-core procs [processors], the new Windows licensing presents two bad choices for SQL hosts: Get eight-core procs to maximize Windows licensing efficiency -- and then get nailed for more SQL Server core licenses -- or throw away half of your Windows Server licenses to keep SQL costs down."

In his experience, DeGroot often sees enterprises that either grossly under-license or over-license when Microsoft's rules change. That means corporations leave themselves open to big bills when Microsoft does an audit (if they under-licensed), or flush money down the drain (if they over-license).

"That's how Microsoft makes billions of dollars," DeGroot said. "If you don't know, you make sure you buy enough, and if there's any risk, you buy more. At the end of the day, you could be paying twice as much as you had to."

Even tallying the physical cores to calculate licensing isn't as easy as it sounds, DeGroot added. (Customers will be responsible for coming up with a count of in-use physical cores when they upgrade under their Software Assurance (SA) agreements.)

"Many inventory tools, including Microsoft's, can discover how many processors a computer has, but they often fail to count cores properly," DeGroot alleged. In one example related to SQL Server, a client's reseller tallied just 32 cores, but DeGroot determined the correct number was 80. "Had they taken the reseller's advice, a future audit would have discovered that they were actually running SQL Server on 80 cores, not 32 cores, and they thus owed Microsoft about $270,000 for the missing core licenses," he said.

And by raising prices -- if that is, in fact, what happens to a significant number of customers -- Microsoft risks cutting off its nose to spite its face.

"Microsoft needs to be careful here because tactics like this are already starting to push SQL Server costs into Oracle territory," said DeGroot, again using the example of the per-core-licensing of SQL Server 2012. "In addition, Microsoft is increasing the gap between free open-source products and its own, and if that gap gets large enough, more customers will move."

There are open-source alternatives to Windows Server, just as there are to SQL Server.

Both DeGroot's Pica and Miller's Directions host Microsoft licensing workshops on a regular basis. The next Directions licensing boot camp is slated for Jan. 18-19 in Orlando, Fla. Information about Pica's workshops can be found on the firm's website.


Gregg Keizer

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