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Unannounced changes to Microsoft's rules on transferring Software Assurance illustrate how cloud licensing requirements are having an impact on traditional on-premise products.

By Paul DeGroot
Principal Consultant
Pica Communications

An recent stealth change to Microsoft licensing rules appears to give volume licensing customers more flexibility in assigning Software Assurance to Windows PCs. While the change enables only a narrow set of new licensing options, it appears to illustrate how longstanding rules for desktop software may have to change as Microsoft tries to drive more customers to the cloud.

The Old Rules

In general, the Windows desktop OS and Software Assurance (SA), Microsoft's upgrade and maintenance add-on, are tied to the computer on which the OS is originally installed and SA can only be added to a license at the time of purchase. However, customers with Select and Enterprise volume agreements could reassign SA to a “replacement device,” as long as that device was already running the latest edition of the OS. Any upgrades on the original device that were installed as a result of the SA coverage had to be removed before SA could be assigned to a different computer.

This was not a particularly generous concession. The main benefit of SA is an OS upgrade, so insisting that the replacement already have the latest version of the OS meant that transferring SA to a different computer didn't gain the customer any immediate upgrade rights. However, if the timing was right, customers might occasionally benefit. For example, a customer who transfers SA to a replacement computer just before Microsoft releases an upgrade could upgrade the replacement device, as long as they had continued to pay 29% of the license price (which works out to about $30-$55, depending on the customer's agreement) every year to maintain SA rights.

However, in the July edition of Microsoft's Product Use Rights (PUR) document, which is updated quarterly, Microsoft quietly slipped in some changes. Although each new edition of the PUR has a list of changes in the document since the last release, this particular change was not noted in the July 2011 list of changes, but comparing the 2011 July and March PURs clearly shows the change.

What changed?

The change has the following effects:

  1. The right to re-assign SA from one device to a replacement device is no longer limited to Select and Enterprise Agreement customers. Customers who purchase SA through any volume licensing program can reassign it to a replacement device.

  2. The requirement that the replacement device have the latest edition of the OS has been removed. Instead, the device simply needs to have a qualifying OS, which in the case of a Windows 7 upgrade includes any business OS back to Windows 98, as well as the Macintosh OS.

Defining “Replacement Device”

Before we tackle the question of what it all means in practice, we should try to resolve one ambiguity: what's a “replacement device”?

Microsoft actually never defines what a replacement computer is, but in some cases Microsoft has made license reassignments contingent on “permanent hardware failure,” which would generally prompt an organization to replace the failed computer.

However, looking at the likely rationale for the change suggests that the replacement device can be any device capable of running a qualifying OS, and one computer doesn't need to fail in order for a different computer to be a replacement. If one reassigns SA from a computer running Windows 7 Professional to another computer running the fabled Windows 98, the computer running Windows 98 “replaces” the Windows 7 device as the “licensed device,” that is, the device to which the SA has been assigned.

It's not clear that Microsoft actually intended this interpretation of the language, which is mine and has not been verified with Microsoft, but if we look at the likely reasons for the change, you'll see that there's a precedent in Microsoft's licensing rules for this intepretation of the change.

Why the Change?

One of Microsoft's most important tasks over the last year has been to better align licensing for online services and for on-premises products. In the case of the Windows OS, the online analog is Windows Intune, a subscription that lets a named user put the latest edition of Windows on a local device, with full SA rights.

The rules for Windows Intune have been quite different from those for the “regular” Windows OS, such as a copy of Windows 7 purchased through retail or OEM channels, or a Windows Upgrade purchased through volume licensing (where the full OS is not available for purchase).

Windows Intune is technically what Microsoft calls a Device Subscription License (SL). According to the PUR, a Device SL can be permanently reassigned from one device to another, and can even be temporarily assigned to a loaner device while the first device is out of service.

In short, the main reason for the change in the PUR appears to be an effort to better align the rules for Windows, regardless of whether it is purchased as an online service or is upgraded through traditional volume licensing channels.

This is necessary because many customers are cautious about moving to the cloud, and Microsoft wants to reassure them that they can easily move back to a conventional volume licensing plan if it doesn't work for them. For that to work, however, the rules for cloud versions can't be dramatically different from those for on-premises license, particularly for the OS. For example, an organization that uses Windows Intune to gain, among other things, more liberal desktop virtualization rights, may conclude that conventional SA licensing, which also offers liberal virtualization rights, is less costly. However, when it ends the Windows Intune subscription, it may not be able to access those virtualization rights unless it can freely reassign SA to the computer.

What's the Impact?

The change to the PUR opens some interesting new doors for customers. I have to emphasize that the ideas here are my own, and have not been endorsed or confirmed by Microsoft, but in my view they are consistent with the changes.

Some of the impacts include the following:

Add SA to older devices without purchasing new licenses for them, and use the SA upgrade right on those older devices.
SA must normally be purchased at the time the underlying license is purchased, but the new rule would permit an organization to add SA to a new PC with an OEM Windows 7 Professional license, and then re-assign that SA to an older computer that might only have a Windows XP Professional or a Vista Business license. The organization could then upgrade the older machine to Windows 7. Of course, the customer has to remove any upgrades that they added to the Windows 7 Professional computer when they do this, but that's merely sleight of hand: since the new computer came with an OEM version of Windows 7 Pro, there's nothing to remove.

Apply SA rights, such as virtualization rights, to existing machines that don't have SA and are prevented from using virtual machines.
Consider a scenario such as this: an organization has one department, such as the product planning department, that wants to use virtual machines, but the organization didn't buy SA for these Vista-era machines at the time of purchase. Now to achieve their goal they must go out and buy new full Windows licenses via retail, at a cost of about $300 each, and then add SA to those licenses, at a cost of about $55 a year. Over 3 years, this will cost nearly $500. There are other options, such as Windows Intune or a Virtual Desktop Access license, but the cost of these subscription licenses will exceed the cost of this option after about four years. With the change here, however, the organization could add SA to any new PCs that it bought in the course of its normal PC replacement cycle, then transfer the SA to the PCs in the product planning department. The advantage is that the department is that it doesn't need to purchase new PCs, with the attendant cost of migrating possibly complex applications to a new PC for every user. Simply re-assigning SA gets them the virtualization right on existing computers.

Is This Good and Will It Last?

OK, so Microsoft will see this and will bring in new language to shut the door on organizations that take such liberties with the changes, right?

I hope not. First, the requirement that SA can only be purchased with a new license is stupid and even harmful to Microsoft. It's so costly to work around that many organizations simply live with older devices and don't deploy virtual machines or other technologies that require SA, such as App-V and MED-V. That's bad for Microsoft. It needs traction, it needs customers to migrate more quickly to new OSs, and SA is a major barrier.

In the scenarios I have described here, Microsoft gets more money from the customer and the customer gets the same rights with conventional software that they do with online software. Microsoft would likely even sell more SA.

That's good, and if Microsoft leaves these changes in place, and permits customers to take advantage of the new flexibility they offer, it will be a win for Microsoft and a win for its customers.

Finally, it is also an important step forward in aligning cloud and on-premises licensing rights.