Downstream Impact of Microsoft Licensing Changes for VDI

On Monday, Microsoft announced some changes to licensing with respect to VDI, as described in yesterday’s article, Microsoft Changes Windows Licensing. Although Microsoft licensing has always been somewhat complex and difficult to understand, this change is a step forward in terms of simplification. Further, the announcement certainly was good news for enterprises that use VDI, because now simplified per-user licensing can be applied. But only for enterprises!

What galvanized Microsoft to make this change? Microsoft has been steadily losing its share of the workstation market, especially with the reduced acceptance of Windows 8.x. Within most enterprises, Apple user devices are at least as common as Windows-based workstations, and that directly translates to fewer dollars in Microsoft’s pocket for desktop OS licenses. This licensing change makes it advantageous for IT organizations to rethink the platform selection for user device purchases, especially where VDI is in use.

Strategically, this is a smart move on Microsoft’s part in its quest to increase its share of the workstation market, especially with the upcoming release of Windows 10. Although Windows 10 isn’t scheduled to be released until later in 2015, enterprises are immersed in 2015 strategic and business planning right now; the timing for this announcement could not have been more precise.

Service providers offering Desktop as a Service (DaaS) must still use Windows Server–based licensing for their virtual desktop products; nothing has changed for this segment of the market. The DaaS requirements within the Microsoft Services Provider License Agreement (SPLA) are still the same, and it appears that Microsoft has no intention of budging from this stance. From Microsoft’s perspective, it has a captive audience that is paying a premium in order to offer DaaS, and there’s no viable alternative (yet!), so there is no incentive for modification.

Outsourced DaaS makes strategic sense for the small and midsized business (SMB) market in particular. Companies in this size range don’t have the time, money, or expertise to support IT infrastructure in-house, so they have been forced to pay for server-based DaaS—but that has changed slightly now as well. With Microsoft’s announcement of the Enterprise Cloud Suite, per-user pricing is available only under Microsoft’s cloud offering.

One caveat with regard to ECS is that the organization must have 250 or more users. A few if/then statements are incorporated into the logic of the per-user ECS licensing, but the bottom line is that enterprises with fewer than 250 users will now be relegated to serving as the prime market for independent service providers. Conveniently, this enables Microsoft to attract the larger piece of the SMB market and leave the smaller section to service providers.

For service providers, the time and effort associated with transitioning clients from in-house operations to cloud/hosted environments is significant. Because service providers typically base their pricing on the number of users and spread the initial setup costs accordingly, this means that the higher per-user setup fees for migrating smaller enterprises makes DaaS more expensive.

All in all, the new per-user pricing from Microsoft is good news for enterprises but not for service providers. Last week, VMware announced that it was developing VDI for Linux. If service providers have a Microsoft alternative for DaaS, the SMB market for cloud/hosted providers will get very interesting!

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