SPLA versus Volume Licensing

Overview

This topic continues to arise for companies that are seeking to decide between adopting volume licensing or SPLA (Service Provider Licensing Agreement) for delivering services to third parties.

The requirement for use of SPLA is often assessed based on determination of the customer as a ‘service provider’ and provision of a ‘service’, and that does not meet the eligibility criteria for Volume Licensing, based on the specifics of the service description, and service architecture topology.

For example, the ‘self hosted’ exception covered in this article, available under volume licensing,  enables a company to use licenses purchased under their own volume agreement and use them with their own intellectual property application, hosted as part of a service to a third-party, rather than the normal requirement to purchase licenses for services via SPLA.

The rationale for careful assessment purchasing via SPLA or Volume Licensing is not only to enable compliance with software licensing, but also to enable cost reduction, as many business  look to assess alternatives to SPLA as prices were increased in January 2018 and January 2019, and Microsoft look to incentivise adoption of the Azure cloud platform. This article will explore the licensing criteria and exceptions for use of Volume Licensing or SPLA respectively to support organizations that are attempting to navigate this particularly challenging licensing topic.

SPLA Price Increases

Effective January 1, 2018 monthly prices for the following products increased:
By 10% for Windows Remote Desktop Services SAL
By 10% for Windows Server Standard (Processor license)*
By 10% for Windows Server Datacenter (Processor license)*
By 10% for SQL Server Standard Core
By 10% for SQL Server Enterprise Core
By 10% for SQL Server Web
By 10% for SQL Server Standard SAL
By 5% for Core Infrastructure Server Suite Standard (Processor license)
By 7% for Core Infrastructure Server Suite Datacenter (Processor license)
(* Applicable to For Agreements that still have the right to report these sku’s)
Effective January 1, 2019 prices for the following products increased:
By 10% for Windows Server Standard Core
By 10% for Windows Server Datacenter Core
By 5% for Core Infrastructure Server Suite Standard Core
By 7% for Core Infrastructure Server Suite Datacenter Core
By 15% for Windows Remote Desktop Services SAL

What is a Service Provider?

The Microsoft definition of a ‘service provider’ could be categorized as a broad catch-all that can often apply SPLA almost by default, unless valid exclusion criteria apply. The requirement for use of SPLA is often determined based on determination of the customer as a ‘service provider’ and provision of a ‘software service’ that does not meet the eligibility criteria for Volume Licensing, based on the specifics of the service description, or service architecture topology.

The Microsoft Product Terms state that you as the customer:

may not (and is not licensed to) use the Products to offer commercial hosting services to third parties” under Volume Licensing.

[Ref: Microsoft Product Terms, Universal License Terms, April 2019, Page 7].

The term “commercial hosting services” is not explicitly defined in binding contract documentation, but there is supporting guidance provided in published licensing guides that are leveraged in this article.

The ‘Service Provider Licensing Agreement Program Guide’, published back in 2010, provides the following determinate guidance on the definition of a ‘Service Provider’ and ‘Software Services’.

A ‘service provider is broadly characterized by Microsoft as follows:

  • Service providers offer a variety of services to customers such as access to third-party software, business transaction services, and line-of-business (LOB) applications.”

  • Service providers offer customers direct or indirect access to Microsoft server licensed products (“products”) or software services that interact with Microsoft products”.

A ‘software service‘ is broadly characterized as follows:

  • “A ‘software service‘ are services that you provide to your customers that make products available and that display, run, access, or otherwise interact with Microsoft products,” and,

  • “The ‘software service‘ is delivered from one or more data centers through the Internet, a telephony network, or a private network on a rental, subscription, or services basis, whether or not the service provider receives a fee.”

“Specifically, you are a service provider if you provide the following services to your customers:

  • “Your organization provides your customers with direct or indirect access to Microsoft products such as hosted websites or LOB applications through Microsoft server products.

  • Your organization offers your customers software services that interact with Microsoft products. In this scenario, you, not your customer, are the licensee.

  • Your organization facilitates your customer’s business, including business transactions with third parties, through software services that interact with Microsoft products.

  • Your organization provides your customers with access to and use of any application, Microsoft or otherwise, and the application is running on a server and interacts with a Microsoft product on that server.”

[Ref: Service Provider License Agreement Program Guide 2010]

Notably, in the 2010 published licensing guide, the term “customer” or “your customer” is enunciated as the beneficiary of the service. However, in contemporary abridged published licensing guide published in 2017, Microsoft more generally replaces the term “customer’ with “end users”.

Albeit, while the ‘SPLA reference card’ published in the same year, retains the “customer” verbiage, the probable reason for the adoption of  “user” language  was to be consistent with the language in the SPLA agreement. It is also reasonable to refer to any organization that uses a datacenter provider’s hosting services as “user”, and accommodate use cases where a datacenter provider delivers platform infrastructure services to other service providers, and expand the scope of SPLA to different service tiers.

This illustrates the increasing abstraction of licensing responsibility and service topology, as Microsoft respond to the emergence of service providers leveraging third-party cloud services like AWS or GCP to provide Microsoft workloads through infrastructure-as-a-service as a ‘data center provider’.

The ‘Microsoft Services Provider License Agreement (SPLA) Program reference card’, also published in 2017, retains the “customer” verbiage, but explicitly calls out the intended beneficiary as a ‘third party‘ echoing the Product Terms:

  • “You use the Microsoft software for the benefit of a third party.”

[Ref: Microsoft Services Provider License Agreement (SPLA) Program reference card 2017]

The ‘Service Provider Licensing Agreement Program Guide’, updated in 2017, provides the following determinate guidance on the definition of a ‘Service Provider’ and ‘Software Services’:

  • Service providers offer a variety of software services to end users such as access to third-party software, platform infrastructure services, business transaction services, web hosting and streaming media services, and line-of-business (LOB) applications for a specific business purpose, in a particular industry or sector.”
  • Service providers offer end users direct or indirect access to products that interact with Microsoft server licensed products offered as software services.”

A ‘software service‘ is broadly characterized as follows:

  • Software services are services that that you provide to your end users that make products available and that display, run, access or otherwise interact with Microsoft Products

“Specifically, you are a ‘service provider’ if you provide the following software services to your end users:

  • Your organization provides your end users with direct or indirect access to Microsoft products such as hosted websites or LOB applications through Microsoft server products.

  • Your organization offers your end users software services that interact with Microsoft products. In this scenario, you, not your end user, are the licensee.

  • Your organization facilitates your end user’s business, including business transactions with third-parties, through software services that interact with Microsoft products.

  • Your organization provides your end user’s with access to and use of any application, as a software service, Microsoft or otherwise, and the application is running on a server and interacts with a Microsoft product on that server.

  • Your organization offers other service providers platform infrastructure services to use and run any Microsoft or third-party application . This, in turn, allows these other service providers to offer Microsoft applications as a software service to their end customers through their own SPLA“.

[Ref: Service Provider License Agreement Program Guide 2017]

Binding Documentation

“Software Services” means services that Company provides to you that make available, display, run, access, or otherwise interact, directly or indirectly, with the Products. Company must provide these services from data center(s), through the internet, a telephone network, or private network, or a rental, subscription or services basis, whether or not Company receives a fee. Software Services exclude any services involving installation of a Product directly on any End User device to permit an End User to interact with the Product”.

[Ref: Example wording, from a Service Provider Licensing Agreement]

Service Provider Examples

The examples of Service Providers, published by Microsoft include, (a) application service providers (b) messaging and collaboration service providers (c) PC rental companies (d) web hosting providers (e) ISVs that provide hosted applications (f) business process outsourcers (g) IT outsourcers that provide business transaction services (h) platform infrastructure providers (i) Streaming media providers (j) Web or internet service providers.

[Ref: Service Provider License Agreement Program Guide 2017]

The Operational Logic

The operational logic to determine requirements for SPLA below will apply, unless the service description and service topology (a) remains eligible under Volume Licensing as normal internal-use, or (b) is eligible for the ‘self hosted’ exception, or (c) is eligible under the ‘dedicated third-party outsourcer‘ criteria, or (d) satisfies the web workloads exception under Volume Licensing. Or, (e) or confers eligibility for the third-party to bring their own Volume Licensing, via License Mobility, subject to your organization’s approval as an ‘Authorized License Mobility‘ (ALM) partner, or, (f) the Azure Hosting Exception. 

The high level criteria for determination of SPLA are as follows:

  1. The Microsoft software is not solely used by your employees, contractors, affiliates, or vendor’s, to your benefit, and,
  2. Microsoft software is used to provide ‘software services’ that access Microsoft software to a third-party, or,
  3. The third-party has access to  your application that interacts with Microsoft software, and,
  4. The service is delivered over the internet, telephony, or private network.

Conversely, if the following criteria are met, it can indicate eligibility for use of Volume Licensing:

  1. The statements above are accurate, and the service is delivered in a multi-tenant infrastructure with your organization licensed through SPLA as an ‘Authorized License Mobility’ partner to permit your end-customer(s) to use ‘License Mobility through SA’ to bring their own eligible application server licenses under Volume Licensing (License Mobility) as permitted by the Product Terms, or,
  2. The statements above are accurate, but your organization is providing its own eligible application (under the ‘Self Hosted’ exception) on-premises, or, in a third-party multi-tenant environment, licensed under Volume Licensing, subject to limitations for Windows Server.
  3. The statements above are accurate, but your organization is providing its own eligible application on fully dedicated hardware (under theDedicated Outsourcer‘ exception) to your end-customer.
  4. The statements above are accurate, but meet the requirements for a “Customer Solution” wrapped with Azure Services (under the Azure Hosting Exception).
  5. If providing Microsoft software for third-party access to information or to acquire goods or services on a website, and the software is publicly accessible, and does not require authentication or log in credentials (under the Web Workloads exception),
  6. If providing Microsoft software for third-party access to information, or to acquire goods or services on a website, with log in credentials, and does not satisfy the service provider and software service criteria (internal use with external connector licenses). For example, your company has an online book store, and enables your customers to buy books from you online. Conversely, this would not apply if a book store solution was provided for book publishers, and this would be considered a “commercial hosting” scenario licensable through SPLA.
  7. The statements above are not accurate, and Microsoft software is only used by your employees, contractors, affiliates, or vendor’s, to your benefit,(internal use), and, you are not using Microsoft software to provide ‘software services’ to a third-party, (internal use)
  8. Or finally, your company has selected to become a Azure CSP partner and bundle third-party services (including your own unique solutions) with traditional Azure services.

[Ref: ‘Microsoft SPLA Qualification Roadmap (v.2)’ to review the operational logic]

The ‘Self Hosted’ Exception

Under this exception, as a service provider, any eligible application(s) that are your own enterprises IP (not licensed from another 3rd party) you can elect to rely on the ‘self-hosted’ ISV exception available under Volume Licensing.

The requirements for ‘self-hosted’ applications from the Microsoft Product Terms are as follows:

  • You purchase the volume licenses, and maintain active SA (Software Assurance) for server licenses and external connector licenses.
  • The exception only applies to Microsoft products that are eligible for ‘self-hosting’ under the Product Terms.
  • The application that is self-hosted should be part of a ‘unified solution’ with Microsoft software offered by your company.
  • Your application is the principal service and/or application of the unified solution, and shouldn’t provide direct access to Microsoft software.
  • The Microsoft software must add significant and primary functionality to your application – (dashboards, HTML editors, utilities, and similar technologies alone are not a primary service and/or application of a Unified Solution).
  • It should be delivered to the end-users over the internet, or private network.
  • The servers you host the solution on should be servers under your day to day control, or a third party other than the end user of the Unified Solution (the Unified Solution may not be loaded onto the end user’s device).
  • The solution should be your company IP, and not licensed by it, except that the software can still have non-substantive 3rd party software embedded, or operates in support of the software.
  • All Microsoft software used in the unified solution must be eligible for self-hosting (this is confirmed at product level in the Product Terms). For example, If your solution uses SharePoint Server or Office, it would not satisfy the requirements for the self-hosted ISV exception. However, Windows Server and SQL Server per-core are both eligible for ‘self-hosting’ under the product level clarifications in the Product Terms.
  • Microsoft requires that customers not mix self-hosting rights and SPLA for each application.
  • Microsoft restricts the use of Windows Server volume licenses and associated external connector licenses within shared server environments:
  • “If Customer delivers the Unified Solution from shared servers, Customer may not use Windows Server  as a Self-Hosted Application”.

[Ref: Microsoft Product Terms, April 2019, Page 88-89 of 115]

Limitation of “Self Hosted” on Multi Tenant On-Premises

  •  If your company is an ‘Authorized License Mobility Partner’ (AMP) under your SPLA agreement, you may deploy your Unified Solution in your own multi-tenant servers, provided that you also report the Windows Server license used to support the Unified Solution under your SPLA

[Ref: Self Hosted Applications Licensing Brief – October 2017]

  • This is an important point, in that the self-hosted ISV exception extends the use of Volume Licensing for Windows Server to only dedicated hardware. The deployment of your “Unified Solution” to your own multi-tenant shared server environments appears to mandate use of SPLA reporting for Windows Server only. The rest of the application can be licensed under Volume Licensing (for example, SQL Server).

[Ref: Microsoft Product Terms, April 2019, Page 89 of 115]

“Self Hosted” on Multi Tenant Third-Party Servers

  • When deploying your self-hosted application software on multi-tenant third-party servers, you are also using your “License Mobility through SA” benefit.
  • Microsoft state that  you may deploy your “Unified Solution” on third-party shared servers provided that the third party is an ‘Authorized License Mobility Partner’ (AMP).
  • As an ISV, you can partner with another data center provider (such as Azure) and bring your own licenses (BYOL) for SQL Server with SA (including cores) from an EA, with your own IP application in a shared/multi-tenant environment.
  • The third-party data center provider is responsible for Windows Server licensed from Microsoft via SPLA.
  • “The Authorized License Mobility Partner is required to license the underlying Windows Server through its own SPLA to support this deployment option”

[Ref: Self Hosted Applications Licensing Brief, October 2017, Page 3 of 7]

  • “For deployments on an Authorized Mobility Partner’s datacenter, the Windows Server used to support the Unified Solution must be licensed through SPLA”

[Ref: Self Hosted Applications Licensing Brief, October 2017, Page 6

of 7]

Impact of the “DCP Eligible” Clause for SPLA

Under the Microsoft Service Provider Use Rights, Microsoft delineate for individual products how they can be licensed under SPLA,  and which products are eligible for  hosting on “Data Center Providers” (DCP) servers.

“DCP Eligible: Permits Customer to use Data Center Providers in the delivery of Software Services to End Users, as described in the SPLA”.

[Ref: Service Provider Use Rights, April 2019, Page 31].

  • What this means, is that as you cannot use your own SPLA agreement to partner with another service provider to host your application (in a shared multi tenant third-party server environment or Azure), and as the ISV report both Windows Server and SQL Server per-core licenses through your own SPLA contract.
  • The ‘DCP eligible’ classification within the Service Provider Use Rights (SPUR) prohibits the use of your own SPLA for specific Microsoft products, specifically restricting this service topology for both Windows Server per-core and SQL Server per-core (This does not apply to user-based licenses) when hosted via a third-party datacenter provider.
  • For example, if you are using AWS or GCP as the third-party data center provider for your application, the ‘data center provider’ (DCP) is required to provide access to Windows Server through their own SPLA.
  • The definition of ‘data center provider’ is “an entity that provides software services, usually infrastructure services to another Service Provider, using products licenses from Microsoft through their own SPLA”

[Ref: Service Provider Agreement Program Guide, 2017, Publication 0617]

  • Notably, Microsoft recognize Azure as a “Data Center Provider” in this scenario. [Ref: Service Provider Agreement Program Guide, 2017, Publication 0617, Page 5 of 13] .

“Self Hosting” on Azure as the Third-Party Data Center Provider

The eligibility for use of “License Mobility through SA” to a third-party datacenter and use of Volume Licensing will require satisfying the ‘self hosted’ ISV exception as described above. If the “unified solution” is deployed in Azure, then eligible application server licenses with active SA can be brought to Azure with ‘License Mobility’, and Windows Server is purchased with the Azure VM instances.

Microsoft provide the following guidance on this topic on Window Server in Azure, but do not explicitly address the impact for service providers using Azure as a data center provider:

  • “Even though Windows Server is not covered under license mobility, volume licensing customers can still upload their own image containing Windows Server to Azure, if they are bringing it as part of Licensing Mobility for another product that is being brought over. We will charge the Windows Server Virtual Machine rate applicable for their instance. Customers can get access to a cheaper per-minute-cost by utilizing the Azure Hybrid Benefit.”.

[Ref: Microsoft Azure FAQs Website]

This is supported in the ‘Self Hosted Applications Licensing Brief’ under the following paragraph “Multi-Tenant Deployment using Microsoft Azure Hybrid Benefit for Windows Server”:

“If your Unified Solution is eligible for Self-Hosting and you own Windows Server licenses with Software Assurance, you may use the Azure Hybrid Benefit for Windows Server and License Mobility Rights to upload your Unified Solution including the underlying Windows Server image to Azure. For details regarding the amount of Azure compute resources available under this option, see the Azure product entry in the Product Terms.”

“You can acquire virtual machine rights under your Commercial licensing agreement or use your Azure Hybrid Benefit for Windows Server.

[Ref: ‘Self Hosted Applications Licensing Brief’, October 2017]

The published guidance does not appear to explicitly address the options for a service provider should their service not satisfy the eligibility requirements as a “Unified Solution” under Volume Licensing. It is uncertain whether Azure Hybrid Benefit can be validly assigned, as a Software Assurance benefit of Volume Licensing,  when a “software service” is delivered via Azure as the ‘Data Center Provider’, when the service description does not meet the eligibility requirements for use of Volume Licensing.

Hosting Exception for Azure

When you as the Service Provider want to provide a fully-licensed “customer solution” to your end-customers using Microsoft Azure services as part of a integrated solution, under the Online Service Terms (OST), Microsoft provides a “hosting exception” for Azure.

“Customer may create and maintain a Customer Solution and, despite anything to the contrary in Customer’s volume licensing agreement, combine Microsoft Azure Services with Customer Data owned or licensed by Customer or a third party, to create a Customer Solution using the Microsoft Azure Service and the Customer Data together. Customer may permit third parties to access and use the Microsoft Azure Services in connection with the use of that Customer Solution. Customer is responsible for that use and for ensuring that these terms and the terms and conditions of Customer’s volume licensing agreement are met by that use.”

This allows you (as a service provider) the right to use Azure services and sell a ‘wrapped’ service to your end-customer.  The last sentence imprints that the “Customer is responsible for that use and for ensuring that these terms and the terms and conditions of Customer’s volume licensing agreement are met by that use.”  In the “hosting exception” definition, the  “customer” refers to you as the service provider.

If you elect to use eligible Azure services as part of your “Customer Solution”, you can purchase Azure via your own volume licensing agreement, and license the application layer via SPLA for all user-based applications, subject to the Online Service Terms (OST), Product Terms, and the Service Provider Use Rights (SPUR), as normal.

  • “Customer Solution” means an application or any set of applications that adds primary and significant functionality to the Microsoft Azure Services and that is not primarily a substitute for the Microsoft Azure Services.

  • “Microsoft Azure Services” means the Microsoft services and features identified at http://azure.microsoft.com/services/, except those licensed separately.

  • “Microsoft Azure Services” includes any open source components incorporated by Microsoft in those services and features.

[…] Microsoft also limits you to:

  • “allow multiple users to directly or indirectly access any Microsoft Azure Service feature that is made available on a per user basis (e.g., Active Directory Premium).”

[Ref: Online Service Terms, April 2019]

For example, your organization would maintain a SPLA contract with Microsoft to report any ‘DCP eligible’ services via SPLA. Your organization would also have an Enterprise Agreement (EA) or Server Cloud Enrollment (SCE) for purchasing Azure services. Under this scenario, you as the service provider are not enabled to resell Azure, but are providing a “Customer Solution” that adds “primary and significant value” to Azure services.

Dedicated Third-Party Outsourcer Exception

When licensing your “unified solution” through the self-hosted applications use right available under Volume Licensing, your preferred Outsourcer or Data Center Provider:

“can deliver your solution from fully dedicated hardware. If shared hardware is used, Windows Server must be licensed through [the Data Center Provider’s] own SPLA“.

[Ref: Self Hosted Applications Licensing Brief, October 2017, Page 4 of 7]

If your service is delivered from a dedicated host, provided by a third-party data center provider, there is an exception available to use Volume Licensing in conjunction with the ‘self-hosted’ ISV exception. Accordingly, if your preferred third-party data center provider can alternatively provide dedicated hardware, and can deliver your solution from hardware ‘fully dedicated to your use’, you can continue to leverage Volume Licensing inclusive of Windows Server under the self-hosted ISV exception for your end-customer.

This is available from AWS ‘dedicated host’ and GCP ‘sole tenant’ offerings. For example, GCP can provide the option to bring your own licensing (BYOL) for Windows Server, with your own images, to GCP sole-tenant and remain compliant for Microsoft licensing under the “Outsourcer” provision and the ‘self-hosted’ exception for use of Volume Licensing.

A sole-tenant from GCP is a dedicated single-tenant host that is fully dedicated, and GCP will not support two customers to share the same set of resources, such as hardware or storage for the term of your subscription. In this case, the “outsourcing” wording within the Microsoft Product Terms would apply.[1]

As Windows Server does not have ‘License Mobility’ rights to enable bring your own licenses to a multi-tenant environment, so you can only bring your own licenses to the GCP sole-tenant offering under the Outsourcer provision. Windows Server volume licenses can only be assigned to physically dedicated sole-tenant hosts, and the software should not be access by multiple third-parties. 

[1] Ref: Please refer to Section 8. “Outsourcing Software Management” in the Microsoft Product Terms, February 2019, page 6 of 112.

Importantly, if you elect to use dedicated hardware, and use Volume Licensing for your ‘self-hosted’ application, you are responsible for all reporting and compliance obligations under your volume licensing agreement regardless of the physical location of the hardware upon which the software is used.

The Web Workloads Exception

The ‘Web Workloads’ exception is for particular use scenarios that omit the requirement for SPLA, and enables the use of Volume Licensing, and is an important set of exception criteria that should be included in the assessment of your service workloads where third-party access is unauthenticated or anonymous to a publicly available website.

  • If the software is publicly accessible, and does not require authentication of credentials, then Volume Licensing remains an option under the ‘web workload’ definition of the Product Terms.
    • “Also referred to as “Internet Web Solutions”) are publicly available web pages, websites, web applications, web services, and/or POP3 mail serving. For clarity, access to content, information, and applications served by the software within an Internet Web Solution is not limited to Customer’s or its affiliates’ employees. Software in Internet Web Solutions is used to run:

      • web server software (for example, Microsoft Internet Information Services), and management or security agents (for example, the System Center Operations Manager agent);

      • database engine software (for example, Microsoft SQL Server) solely to support Internet Web Solutions; or

      • the Domain Name System (DNS) service to provide resolution of Internet names to IP addresses as long as that is not the sole function of that instance of the software.”

[Ref: Microsoft Product Terms, April 2019, Page 75 of 115]

Azure CSP

The Microsoft Azure CSP (Cloud Solution Provider) is a partner channel model for Azure, enabling firms to offer managed services on Azure (This  replaces what was formerly available under a ‘Managed Service Exception’ that was available until October 1st 2015)

As addressed in this SoftwareONE article by Paul O’Connor, there are two routes available for becoming a CSP Partner with Microsoft: Direct (Tier 1) and Indirect (Tier 2).

Direct CSP

Becoming a Direct CSP partner means that you will be contracted directly with Microsoft,

  • Purchase resource from Microsoft and resell Azure to your end-customers.
  • Maintain and ‘Advanced Support Agreement’ and provide support to end-customers
  • Develop and maintain your own intellectual property built on Azure.
  • Develop and offer a concrete customer billing structure
  • Deliver in minimum revenue expectations to maintain direct CSP partner status.
  • Paul O’Connor advises this process can take 4 months to complete.

Indirect CSP

Selling through an Indirect CSP program is recommended by Paul O’Connor as a faster and simpler model, the Azure CSP indirect reseller is a good choice for partners who don’t want to manage as much infrastructure as an Azure CSP direct partner, and can team up with an indirect provider to handle their support, billing, and invoicing needs,

  • Indirect model, working with an approved CSP indirect provider who has tools and platform needed to place orders, billing and license management.
  • Sell to your end-customers at the profit resale margin your require.
  • This model enables your to scale at your own pace, with an expedited on-boarding process.
  • Access to an experience support infrastructure.
  • You will still see revenue recognition and ‘Partner of Record’ status towards your Microsoft Partner status.
  • The indirect provider is responsible for complimentary services and IP.

Approaches with CSP

  • Your company can assess accreditation as an Azure CSP partner and enable the “bundle third-party services (including your own unique solutions) with traditional Azure services”,
    • This can enable your company to move your SQL and Windows Server workloads to Azure as an Cloud Solution Partner (CSP).
    • Microsoft are promoting transition from SPLA to CSP to enable service providers to “buy Windows Server and SQL Server licenses on behalf of their customers directly in Partner Center”.
    • Microsoft recommend in a recent TechNet article to “use this new capability of Partner Center to buy Windows Server and SQL Server licenses for 1 year or 3 years on behalf of your customers”.
  • Microsoft support CSP tier-1 partners and tier-2 indirect providers to deploy multi-tenant applications and solutions, combined with internal workloads and management solutions in a shared services tenant, via partner shared services (with limitations).
  • Alternatively, as an ISV you can decide whether or not to offer your product(s) to Cloud Solution Provider (CSP) partners in Partner Center and configure your offering to be available through the CSP channel.
    • The Azure services available via CSP are listed here, and the list of BYOL solutions available in the Azure Marketplace are here.
    • See the published guidance on billing in Azure CSP

As a ISV, your software license fees and Azure usage costs are charged separately through your Azure subscription, approaches include:

  • Unbundled: BYOL Model: Bring-your-own-license. When obtaining a software license directly from the publisher or a reseller, there are no additional software-related charges or fees.
  • Bundled: Azure subscription is included with the publisher’s Independent Software Vendors (ISV) solution pricing.
  • Use Metering: Rates are charged or billed based on the extent usage of the offering. For VM images, it is charged on an hourly fee. For Developer services and APIs, it is charged per unit of measurement as defined by the offering.
  • Monthly Subscription:Rates are charged or billed a fixed monthly fee for a subscription with support for pro-ration.
  • Free/ Free Trial: Free SKU. No charges are applied for software license fees or usage of the offering.

[Ref: Azure Marketplace FAQs ]

  • The Azure CSP website does caveat “It should be noted that applications published by third party ISVs are not yet available for purchase through Azure CSP subscriptions. However, third party Bring Your Own License (BYOL) and Free images are available for CSP subscriptions”
  • You can only purchase Software as a Service (SaaS) product subscriptions in Partner Center. Other offer types (such as Azure applications, Containers, or VMs) are managed through the Azure portal and billed according to consumption.
  • Microsoft updated the Azure billing model in March 1st 2019, impacting all SaaS subscriptions, Azure reservations, and software (perpetual and subscription-based) products offered by Microsoft and third-party ISVs.

Conclusion

As outlined in this article, the requirement for use of SPLA is often determined based on the positive determination of your organization as a ‘service provider’ and provision of a ‘software service’, that does not meet the eligibility criteria for any Volume Licensing exceptions, based on specifics of the service description, and service architecture topology. The business model for SPLA has been expansive, but as Microsoft have driven their ‘Modern Commerce’ strategy, and published price increases over the last two years, the economics of SPLA are under threat as Microsoft seek a direct relationship with their customers on Azure and Microsoft 365. The complexity of segmenting responsibility for licensing between you as the ‘service provider’ and any third-party ‘data center provider'(s) in your service delivery architecture topology adds another level of complexity.

Microsoft retains an aggressive audit stance for SPLA, determined based on authorized access rather than use, with no credit for over-payment for prior monthly usage, and settlement for historic usage made at current price file with  penalty pricing, and determination of full usage back-dated from the commencement of the contract – unless records can prove otherwise (records are required under the MBSA). The management overhead for  monthly reporting, and risk of audit can be significant.

SPLA still gives you additional ‘flex’ up-and-down as a subscription model, but could be more expensive than Volume Licensing inclusive of price increases in both January 2018 and January 2019 (and factoring in any discount on your EA or SCE contracts).

Windows Server per-core licenses are available via SPLA, with an associated benefit that end-users do not need Windows Server CALs when purchased under SPLA (for example, this is  promoted as ‘unlimited’ users by AWS when promoting the benefit of on-demand instances). However, be aware that if your service uses RDS functionality, this could get cost prohibitive if there are a lot of end-users.

SPLA partners are required to report use in their monthly use report and pay for this usage, and internal use is required to be less than 50% of the total use of such products by all of their end-customers each month.Under the ‘self-hosted’ exception, there is no limit either to internal or external usage, provided that your organization assigns the appropriate licenses. For organizations that make considerable use of their own hosted solutions, this consideration may be material in adoption of  the ‘self hosted’ exception and licensing under your organization’s EA.

While the ‘self hosted’ exception covered in this article, is a promising exception to use of SPLA, admittedly, as there are often many participant actors involved in modern internet enabled services,  and multiple service layers and variant service architecture topology (shared servers versus dedicated hosts, and third-party infrastructure providers for example), as well as an unfortunately fragmented (and limited) licensing guidance, it can be a challenge to concretely assess the requirements for SPLA, or eligibility to use Volume Licensing.

As the ‘Modern Commerce’ strategy continues to drive digital transformation of the partner ecosystem around Azure, current SPLA partners and ISVs should also evaluate working with a global scale Azure CSP partner via the Indirect CSP program and team up with an indirect provider to handle their support, billing, and invoicing needs.

As always, the answer will not solely be found in your binding documentation, and this article has sought to collate all relevant documentation in support. Accordingly, any sought clarity in concretely determining a requirement to use SPLA will still place the burden of assessment on experienced IT professionals in your organization who are best placed to characterize the services and applications provided, and the delivery topology. I hope you find this useful.

Thanks All


About

This website is a way to give back to the licensing community and as an information resource for all customers that work with Microsoft software and licensing. I hope you find it of value.

Tony Mackelworth is Head of Microsoft Advisory Services at SoftwareONE

If you would like to reach out for a coffee or a meeting under NDA, Email or connect via Twitter or LinkedIn

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