Microsoft to enact new cloud outsourcing and hosting licensing changes which still don’t address core customer concerns

On August 29, Microsoft went public with promised cloud outsourcing and hosting changes which officials first outlined earlier this year. These changes, which will take effect on October 1, 2022, still don’t address some of the core customer and partner complaints which led to Microsoft revising its policies in these areas.

Microsoft introduced outsourcing restriction in 2019 that resulted in customers paying more to run Microsoft software in non-Microsoft cloud environments. Customers who had been using AWS and Google Cloud as dedicated hosts for running Windows Server and clients were affected directly, but some of them didn’t realize the extent of the impact until their contracts with Microsoft were up for renewal this year. Microsoft’s changes around its bring-your-own-license terms made their contracts more expensive if they wanted to run Microsoft software on anything but Azure.

Some European partners and customers took their complaints to European antitrust authorities. Microsoft responded with a set of “European Cloud Principles,” which officials said would level the playing field — to some extent — for partners and customers who wanted to run Microsoft software on certain non-Microsoft cloud infrastructures.

What those principles didn’t include was what many customers cared most about: The ability to run Microsoft software on Amazon Web Services, Google and Alibaba. They focused on customers who wanted to move their software licenses to other clouds outside of those “Listed Providers.”

“This is just them circling back and lightening up the rules for Cloud Solution Providers (CSPs). It doesn’t change the complexities and limitations that affect the ‘listed providers’: Amazon, Google, and Alibaba, and their joint customers with Microsoft,” said Directions on Microsoft analyst Wes Miller. “While this is good news for a set of providers, there’s no change to the complex and encumbered rules that affect those three providers and customers. ”

Earlier this year, Microsoft officials said they would address some of the complaints from European cloud vendors about restrictive cloud licensing policies that resulted in customers paying more to run Microsoft software in non-Microsoft cloud environments. The list of changes Microsoft outlined today, company officials said, will make it easier for customers to bring their software to partners’ clouds; to ensure partners have access to the products they need to sell cost-effective solutions that customers want; and to empower partners to build solutions with speed and scale.

Specifically, Microsoft is adding a new Flexible Virtualization benefit which officials said will allow customers with Software Assurance or subscription licenses to use their own licensed software to build and run solutions on any infrastructure except the Listed Providers (AWS, Google, Alibaba). Customers who want to run their own Microsoft-licensed software on those providers’ infrastructure will have to buy the licenses from those providers. And any user with a Microsoft 365 F3, E3 or E5 license will be able to virtualize Windows 10 or 11 on their own servers or outsourcers’ servers — as long as those outsourcers are not AWS, Google or Alibaba — without any additional licenses required. (Currently, customers need a VDA add-on license to virtualize qualifying Windows 10 or 11 editions.)

Microsoft also is adding a new Windows Server virtual core licensing option as part of the Flexible Virtualization benefit, which will allow Windows Server to be licensed on a virtual core basis and not on a physical core one, as exists currently. Microsoft officials said this change will help with moving Windows Server workloads to the cloud.

Microsoft’s August 29 blog post outlines in more detail these coming hosting/outsourcing licensing changes, along with a few additional ones.