Licensing and Virtualization: Changes to SPLA May Impact Provider Cost Models

In many application hosting environments, machine and operating system virtualization provide the only realistic means for delivering services for applications which were never designed for high-volume multitenant implementation. In these environments, providers rely upon technologies from Microsoft, VMWare, Citrix and Parallels to provide containment of application environments, creating frameworks where single-tenant applications and hosted infrastructure may be affordably offered to subscribing business customers. Because many of the applications being hosted today do not conform to the various standards which exist for high-volume and multitenant delivery, providers have taken what we’ll call “creative” approaches to virtualized application and environment implementations. Under certain licensing models, these approaches may be sustainable for a period of time. However, recent adjustments to core licensing components and pricing from key providers, Microsoft in particular, may significantly impact the cost of service delivery for providers with less than optimized infrastructure.

One of the notable changes in the Microsoft SPLA (Service Provider License Agreement) is the treatment of Windows and RDS users in the “desktop as a service” model. In previous editions of the SPLA, as was offered with 2008/R2 licensing and prior, providers could select from two different models when implementing service: the SAL-only (server access license) model, which applies on a per concurrent user basis to the infrastructure, or the PL (processor license) model, which applied to the processors installed in systems with Windows operating system and SQL server instances.

For high-density and multitenant environments, the per-processor approach is far more cost efficient to implement, as it allows the provider to create a scale economy with the infrastructure, leveraging hardware and resources across many subscribing tenants. Reducing the cost model to a base infrastructure rate also introduced predictability and stability in recurring costs for the provider, even as subscriber numbers and subscription revenues increase.

The problem reveals itself with the providers deploying “not optimal” infrastructure, whether by design or due to legacy application requirements. These providers rely upon the per-user pricing models to support access and usage to the infrastructure, largely due to the fact that the infrastructure has grown “out” and not “up”. Deploying more servers and more VM instances allowed these providers to present legacy applications as part of a managed application service model. While the management of the infrastructure is greatly complicated with this approach, it is often the only means to addressing the needs of popular “noncompliant” applications (such as Intuit QuickBooks and Sage 50). With the SPLA changes introduced for Windows 2012, these service providers may be in a bit of a tough spot. You see, the per-user option for licensing Windows server access is gone, and only the per-processor licensing model remains.

Microsoft is wisely addressing the needs of the market which is demanding more capability and affordability in terms of cloud-based access to applications. These pricing adjustments are necessary to support the needs of service providers who are increasingly stretching their infrastructure investments to deliver higher user density at a lower per-user cost. Further, application developers seeking new markets and delivery models are taking advantage of these virtualization approaches, creating hybrid and hosted solution models around their legacy application products. The licensing approaches which support these higher density application deliveries introduce options for developers to optimize their applications for the hosted model rather than dealing with immediate comprehensive re-development (which isn’t an option for many ISVs – independent software vendors).

The IT world is forging ahead with cloud computing, high-capacity infrastructure, and heavily virtualized environments supporting larger numbers of users. Software developers must take heed, and embrace these deployment models (or at least adjust to the point of supporting them) in order to have a chance at keeping pace in the anytime, anywhere world of today’s business technology. This means working collaboratively with hosting service and infrastructure providers, crafting services which have the required scalability and incorporating a deployment model agile enough to take advantage of infrastructure licensing benefits as they are introduced.

What was a serviceable pricing structure yesterday may be an anchor holding your profitability down tomorrow. Service providers – make sure you’re keeping a close eye on licensing requirements and delivery cost models, and consider that building up your infrastructure capability is often more cost efficient than building out.

Make sense?