SPLA – Cooper Mann Consulting

July 31, 2017July 31, 2017

Licensing for Hosted Application Services: Why it costs what it costs

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.

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August 29, 2013August 30, 2013

Focus on the Finance Department: QuickBooks in the Cloud

Vendors and IT solution providers are all buzzing about their cloud services and solutions available via the Web. This buzz often includes statements about lower cost of IT acquisition and service management and how mobility and remote access benefits the business. These statements are proving true for many businesses, yet there are still vast numbers of small business operating on local computers and unmanaged service. The reasons which hold back these business from adopting cloud computing models are as many and varied as the businesses themselves, but there is a consistent thread to be found in these reasons, and it has to do with a lack of understanding of what certain applications really mean to the business. In this case, the discussion is about the focus on strictly operational or administrative areas of the business and not on the finance department which, in so many small businesses, uses QuickBooks.

Cloud solution providers are in business to make money, and hosting companies in particular are looking for the right applications which will drive usage and revenues on their platforms. When these providers look at the small business market, they’re trying to identify the applications and services that small business owners will adopt in volume. Identification of these opportunities to serve a large customer base is essential to the provider’s economy of scale and profit model. It makes sense that hosts would want to offer the applications which drive the highest degree of usage in their environments, so they tend to focus on the applications used by the greatest number of users within the customer organization. In the small business market, these applications are email and productivity tools – solutions which are used broadly throughout the business and which serve a horizontal rather than vertical industry orientation. Those are the two easy picks; finding the next most valuable solution represents a bigger challenge for the provider.

With Intuit QuickBooks desktop editions boasting the lion’s share of the small business accounting market, it seems that hosting QuickBooks products would be the next natural selection by hosting providers already serving their small business clients with email and productivity solutions. However, because these service providers do not fully understand the essential functions QuickBooks serves in the small business, the assumption is that the usage of the solution is so nominal that it doesn’t make sense to develop the capability to offer it. It is a misunderstanding that many providers have, and is the result of a lack of historic participation in the product. QuickBooks, you see, is a direct to consumer product rather than a channel product, and most IT service providers and hosting companies recognize the product name but not really what it does or how it operates. And these hosts are often large companies and therefore have no direct experience using the product, so there is no frame of reference for them to work from. These service providers are simply overlooking the important role that QuickBooks solutions play in many small businesses, where it is used to handle various operational aspects of the business as well as being the product of choice for bookkeeping and accounting. Particularly with the QuickBooks Premier and Enterprise editions offering additional functionality and industry-specific features, the products are used widely by small businesses and not just for accounting and finance.

The point of the discussion is that hosting companies and “cloud server” providers should look at the mixture of applications used by their small business customers, and they are likely to find that QuickBooks products are pretty high on the list. Even if there are only a few people in the accounting department, and the usage by these individuals is not representative of the entire hosting opportunity, hosts should recognize that those few individuals and the software they use are not only essential, but are probably processing payroll for all those other users on the system and are paying the bills for products and services purchased. After all, if you’re going to make anybody in the company happy, make sure to focus on the finance department and help them get their QuickBooks in the Cloud, as they’re the ones that will be paying the bill for the service.

Joanie Mann Bunny Feet

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August 26, 2013October 9, 2017

Cloud Computing for Small Business: It’s All About 3 Apps

Every business uses technology at some level, and every business has certain fundamental needs which are most frequently met through the use of computing technology. Regardless of business type or size and independent of industry orientation, there are 3 fundamental things which every business does which means that there are 3 fundamental application types or solutions which every business will buy at some point. These 3 application types, which could be distilled down to just “applications”, have become so broadly used in business and so widely recognized as the standards that their names are often used instead of the term representing the functionality they provide. When it comes to cloud computing for small business, it’s all about these 3 applications.

In what are now referred to as “legacy” or “traditional” models, these products would generally be purchased as software and associated hardware to run it, and would be installed and managed on the local premises. With cloud computing models, the solutions may be purchased or subscribed as managed infrastructure and application licenses, or as a full service subscription (SaaS). Regardless of the service model, the applications are the key to the customer win. While cloud computing may be challenging how IT products and services are sold and delivered to customers, it is not fully impacting which solutions customers are actually looking for. Over the past 16 years this has been the reality, and it may take another decade before these products are unseated from their top positions simply due to the inertia of the installed bases they’ve already developed. Service providers have found (or will find) a way to deliver these applications in cloud computing style, or small businesses will simply not move everything to the cloud very quickly. It is really just that simple, and I’ll explain why.

The three things that each and every business does, and which they generally purchase computers and software to facilitate, are communicating, producing information, and keeping score.

1. Communicating is an essential need for every business. Whether it is communication via phone, fax, email or otherwise, businesses will communicate and they will purchase products which help them do it better. The standard for business email communications has become Microsoft Exchange, which is now available as a highly affordable subscription service from Microsoft or from a wide variety of commercial MS Exchange hosting providers. Certainly the popularity and growth of hosted Exchange supports the argument that not only is MS Exchange mail very widely used in businesses of all sizes, but that it is also highly acceptable as a hosted solution because users retain desired functionality and are able to benefit from a variety of add-ons and additional services from their hosted Exchange email provider. The other thing about hosted Exchange is that the user can still use MS Outlook on their desktop to get their mail. Now we’re back to the desktop application again. Regardless of what mail server and service the user has, they are often more attached to using Outlook than they are to the mail service. In fact, when you ask a fairly non-technical user what they use for email, they’ll often say they use Outlook (the desktop client, not Outlook.com).

2. Producing Information is another essential need for every business. Whether the information is produced for internal or external use, there is a lot of information created to inform various people about the business. Documents, spreadsheets and presentations are used in every business, and productivity applications help people create them. The standard in this area is Microsoft’s Office suite of products which includes Word, Excel and Powerpoint. It isn’t unusual to have someone suggest “making a powerpoint to get the message across”, rather than using the word “presentation”, and does anyone expect to get a document not in .doc format? When users ask for productivity products, they usually ask for Office software and they usually mean Microsoft Office suite products.

The broad use and proven suitability of these products has well established them as the standards for use in business. While these applications are now available as limited-functionality web-based applications, most businesses continue to rely on the desktop products which resulted in myriad file sharing and “collaboration” tools which work with the Office products. Microsoft recognized the value of having the feature-rich productivity applications available in hosted and managed service models (as hosted applications rather than true web-based apps), and made the products available for licensing and distribution via their Service Provider License Agreement (SPLA). Microsoft (direct and via partners) also offers Office 365, which provides licensing for Office desktop applications and/or hosted Exchange email services.

Hosts with cloud servers and managed infrastructure and VDI solutions are all facing this truth: their services are useful when there are applications running on them, and among the most frequently requested applications are the Office apps. This is why so many providers offer not only cloud servers and virtual desktop solutions, they add value to their service by also offering the Microsoft Office products. At least in the case of MS Office, service providers have recognized that certain fundamental applications must be present in order for the server or desktop to have value for the SMB customer. After all, “moving the server to the cloud” doesn’t solve the problem if all the apps remain on the local PCs.

And then we come to the final application – the last fundamental small business application for service providers to focus on. It is with this application that hosting companies will make real impact in moving their small business customers from local to hosted applications, virtual desktops, and the world of cloud servers and managed hosting.

3. Keeping score, or accounting, is the final absolute and fundamental business function which exists in every business regardless of size, type or industry. This is another area where service providers are focusing, realizing that within the realm of small business accounting there is a single standard product line which serves the exact profile of the target SMB/SME customer: Intuit QuickBooks desktop products.

When challenged to find a single application solution which addresses a fundamental business need, is not oriented towards a particular industry segment, and which is likely to drive increased usage simply due to existing market penetration and sales – there is only one name that answers, and it is QuickBooks, most specifically the Pro, Premier and Enterprise desktop editions.

Looking further into the problem reveals that there may be more options for small business accounting emerging in the SaaS market, but this doesn’t help the hosting companies looking to increase usage on their own platforms. Additionally, while new and emerging solutions may be introducing options for very small business, the activity actually serves to increase awareness of and usage of computerized accounting solutions, resulting in increased share of the market looking for and purchasing these solutions – increasing the overall market for SMB accounting products and providing an opportunity to sell QuickBooks solutions to those new users. Further, Intuit QuickBooks remains the dominant choice once the business has needs beyond simple invoicing and bill payment, and continues to see growth in product sales and distribution for this reason.

It’s also true that, once a business has itself “invested” in an accounting product, change is not something considered easily. In many (most?) cases, the business is more closely tied to their financial systems than they are to their service provider. If the provider can’t work with the software, the business is likely to seek services from another provider.

Moving everything but finance to the cloud is not an option for most businesses, either. Particularly with small business/small enterprise, there are generally systems which serve a broad business need and not a single function. QuickBooks is not just a back-office accounting product. It also provides some front-office functionality, such as storing general customer information, handling invoicing, inventory management, job costing and other functions. It is essential that service providers not minimize the importance of this solution in their target client operation.

The financial system is not an island and is often integrated with or connected to other applications and data. Even though the QuickBooks desktop products are designed to suit businesses up to 250 employees, it is unlikely that a business will have all 250 people running QuickBooks. Rather, the product may be used by 2 or 3 people in the accounting department, or possibly by up to 30+ users in an Enterprise deployment where the product serves more operationally oriented functions. The rest of the company is likely using MS Office and email as suggested earlier, and perhaps some other operational or business specific product which may integrate with QuickBooks. The point is that it’s unwise for service providers to minimize the importance of the financial software and systems, even if those solutions are used by only a very few of the total number of users within the organization.

More evidence suggesting that the name QuickBooks has become almost synonymous with small business bookkeeping is visible within the accounting and bookkeeping industry, where bookkeeper training programs focus as much on the QuickBooks product (if not more so) than on actual accounting fundamentals. Businesses hiring bookkeepers don’t ask for bookkeeping experience, they ask for QuickBooks experience. If a small business owner asks his accountant what product to use, it’s a good bet that the accountant will recommend, and possibly even set up, QuickBooks for the client. There is momentum there which cannot be argued with, and it represents significant opportunity for those who have platforms to run the stuff. Weirdly, QuickBooks desktop editions and other desktop-based financial products available in a cloud hosted model represent a last and final element which is driving broad adoption of cloud servers and hosted desktops within the SMB markets.

It is all about the apps, but not just any apps. It’s about the apps small businesses need, want, know, and currently use. Service providers who can offer their customers these applications as cloud service – as managed applications on a cloud server or VDI platform – are in a position to serve the broadest base of SMB/SME customers. Talk about addressable market… at that point, it becomes a simple function of exposure as the value proposition is undeniable (and barrier-free).

Joanie Mann Bunny Feet Make Sense?