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Licensing for Hosted Application Services:
Why it costs what it costs
Application hosting services are experiencing resurgence in popularity these days, due to the prevalence of messaging about the benefits of a “cloud” technology model. While hosted application services aren’t really cloud (according to cloud technology purists, anyway), they can look and feel and be paid for just like cloud solutions, so the name fits OK. Hosted applications are desktop or network applications you access via the web, where the software is implemented and managed by a 3rd party application service provider (the host) rather than being installed on your local PC or LAN. Some software products may be rental-licensed by the ASP, and when combined with the hosting service, the entire subscription service is more like SaaS (software-as-a-service) than the old “purchase and install” approach.
An important supporting program for application hosting service providers is the Microsoft Service Provider License Agreement program. Under a formal agreement with Microsoft or via an SPLA reseller, service providers and independent software vendors are able to license the latest Microsoft software to provide software services and hosted applications to customers. With the SPLA, service providers and ISVs can lawfully license Microsoft products on a monthly basis to host software services and provide application access for their customers. The SPLA supports a variety of hosting scenarios to help providers deliver highly-customized and robust solutions to a wide range of subscribing customers, and it’s the only valid means for obtaining subscription-based provider licensing for these products.
Because the software products being hosted are essentially desktop or LAN-based products, the underlying technology to “deliver” those applications is generally of a similar foundation. In cases where the provider is offering hosting of Windows-based QuickBooks desktop editions or Microsoft Office applications, for example, the platforms and servers used by the service provider are almost certainly Windows-based. This operating system, as well as the rights to allow remote user connections to it, is licensed to the provider from Microsoft under the SPLA. These elements are referred to as “user” licensing elements.
An aspect of Microsoft reporting and licensing which is not well recognized (or frequently complied with) is the difference between user and application licensing.
User licensing, which includes the Windows server access license as well as the remote desktop user license, is a named user access license. This means that the provider need only report and settle for the user license if the user actually accesses the system during the reporting period (usually each month). Not quite like a concurrent user model, where only the high count of users is reported, the named user model requires that the license for each user be paid if that user logged in at any time and remained logged in for any length of time during the reporting period.
Application licensing applies to the application software license acquired through and governed by the use-rights provided for and granted under the Microsoft SPLA. Rental application licensing is assigned to a specific, named user, and is to be reported fully on a monthly basis regardless of whether or not the user accessed the software. This is in direct contrast to the named user access licensing described above. Providers are required to report and settle on a monthly basis the total number of subscribed application licenses available to users, including Microsoft Office applications, Exchange, SQL and others, regardless of whether or not the user actually logged in and used the products. The license is assigned to the user and is therefore required to be paid.
Being an application hosting service provider is a complicated business, and there is a lot to consider when developing subscription services for broad customer delivery. Pricing is one of the complaints customers voice relating to these services, but the reality is that it takes quite a bit in terms of system resources and licensing to provide an acceptable hosted application experience. This is one of the areas where SaaS and true cloud solutions benefit from a scale economy – where the application is designed for the platform, and one instance of the solution and platform can serve a large number of customers more affordably.
When working with a hosting service provider, it is wise to recognize that the platform and software licensing costs are there to support the type of applications being hosted. If you have an SQL-based application, you will need the SQL licensing to support it, just like you have to pay for licensing of an Exchange mailbox or a hosted copy of Word. Enabling only a portion of the total business software requirement may make it difficult to cost justify hosting just one solution. However, if the business utilizes the host to manage all the desktop applications and data, the cost-efficiency of the approach can increase dramatically. Regardless of whether the business elects to continue to run software on local PCs, or if it decides to outsource IT to a host and run it there, the company will have to pay the price for software licensing.