Incentivizing Through Price Hikes!

Snow Software’s Managing Consultant, Michael Gray, explores the recent changes in pricing adopted by Microsoft to encourage users to move to cloud technologies and what it signals for the future of Software Asset Management (SAM).

RECENT PRICE HIKES

In the summer of 2015, Microsoft hiked the on-premise license pricing for User CALS (client access licenses) by 13%. I believe this was a calculated move by the vendor towards its goal of a user-centric, mobile and cloud world.

Microsoft customers must decide how best to deal with this over inflationary price rise.Do they purchase Cloud suites that provide dual access to both online service and on premise server software or license CAL suites on a per device basis.

Having seen a similar price increase of 15% three years ago, this recent news essentially means a 28% price difference between user-based and device-based CALs over a relatively short period.

INCREASE IN DEVICES PER USER

As we all know, staff are using a lot more devices than ever. As a minimum, they will have a smart phone and a laptop, sometimes a desktop and a tablet too. Today, some surveys suggests an average of 3.1 devices per person, which is predicted to grow to 4.3 devices by 2020.

For users with say, three devices, they would only need one user CAL, whereas they would need three CALs if the licensing was device-based. It’s no wonder therefore that customers are considering the Cloud.

Microsoft is focusing on driving adoption of Office 365 and Azure by transitioning its customers to cloud-based licensing. Of course, for the vendor there are the advantages that it will deliver a source of streaming and recurring income (via a subscription) on an annual or triennial basis. For customers who adopt the cloud offering – such as Office 365 Enterprise editions, the Enterprise Mobility Suite and the Enterprise Cloud suite – they will be able to access both online services and on-premises server software.

MOVE TO CALs?

There is little sense for an organization to opt for device-based CALs unless it has an environment where shift working is prevalent, e.g. a manufacturing floor where three different people share a computer over the course of the day.

The CAL price increases also reflects that Microsoft is increasing the functionality that these certain applications or products deliver. By investing research and development to increase functionality and capability (memory and processing) the vendor has increased the prices accordingly.

Another consideration that Microsoft is likely to have taken when increasing the prices of the CALs is that they are relatively low-ticket items. Therefore it may have calculated that customers will be more accommodating around price rises on such products compared to making a louder noise with much stronger negative feedback over a price increase to the server components themselves.

The average cost of license only for a Windows Server CAL is around $30, so if you put a 10% to 15% price increase on that, you're only looking at a $3 to $4 difference, whereas if you look at server licensing, take SharePoint as an example, you would be looking at a price of approximately $3500 to $4000 for the server license. This makes a price increase of a 10% or 15% price it a lot more noticeable.

MICROSOFT’S STRATEGY

I definitely believe that Microsoft realized it was leaving a vast amount of money on the table with the proliferation of mobile devices. Considering a user now has an average of three devices there had to be a shift at some point in time.

At the same time, Microsoft realizes it can have a recurring revenue stream by transitioning users to a subscription based model where cost is based on consumption instead of a perpetual license, enabling Microsoft to rely on a steady stream of revenue.

Satya Nadella’s introduction as CEO a few years ago has seen Microsoft’s focus shift towards cloud and mobile working, with the tag-line of a ‘mobile-first, cloud-first world’. Microsoft is well aware of the future importance of users and mobile devices. Changes in license metrics and pricing for datacenter applications highlights that, but also offers users increase mobility.  

Getting on top of the changing world of software licensing

What’s evident from this is that while the details of software licensing is in an almost constant state of change (we recently covered the news of changes to Windows Server 2016 licensing), the fact is that software still costs money and thus still needs to be proactive managed if it’s not to a) cost too much money and b) expose the organization to compliance risks.

The old style of “one device, one user, one app” license management is dead.  That is why Snow Software has invested in the last two years in creating what we call the 4th Generation SAM platform which empowers organizations to manage all software usage – regardless of platform (mobile to desktop, datacenter to cloud), whatever the vendor (Adobe to Oracle, Microsoft to SAP) and whoever the user.   With the move to cloud and subscription licensing, organizations might rightly be less concerned with compliance, but they should be more worried than ever about over-spending. 

This is where the true future value of Software Asset Management lies.