How will Microsoft’s price increases of their software affect small businesses in 2021?
On July 1, 2016, Microsoft announced a change to its business licensing options for commercial customers. Specifically, the company will be moving from a fixed-price arrangement called Open Business licensing to a flexible Consumption model.
This is not just a Microsoft licensing change – it’s part of a larger movement in the technology industry, to provide cloud computing platforms that are more flexible and scalable. Microsoft has been pushing to make Azure its core business, while further monetizing Windows 10 through various services.
This Microsoft license cost change doesn’t affect many small businesses… yet. The majority of Microsoft’s Open Business enterprise customers are larger organizations with Microsoft Volume Licensing plans. According to Microsoft, only about 20 percent of its existing Open Business customers will be impacted by the new Consumption-based licensing plan.
And Microsoft is providing a four-year transition period for those clients – starting in July 2017, Microsoft’s Open Business pricing will remain fixed for 12 months, and Microsoft will offer a one-year renewal with Consumption pricing after that. Microsoft clients with Enterprise Agreements, which are similar to Microsoft Volume Licensing agreements, aren’t impacted by the new licensing plan either.
Microsoft is moving toward a Consumption-based business model because it allows them to price their software more competitively in the cloud. Microsoft’s original Open Business licensing allowed customers to purchase software and run it on premises indefinitely – but Microsoft didn’t include client access licenses (CALs) in the price.
In other words, organizations were paying for Microsoft server products to use without ever being charged again for access. This enabled businesses to save money in the short term, even though Microsoft was giving them the ability to use their products for free.
However, Microsoft’s Open Business licensing is far more expensive than Microsoft’s cloud-based services. Microsoft has determined that it makes more sense to align its licensing model with how organizations are actually using Microsoft software anyway – by subscribing to Azure or Office 365, for example.
Microsoft now estimates that the average Microsoft customer spends about $1,500 a year on Microsoft services.
Therefore, Microsoft’s Consumption-based licensing aligns with how most Microsoft customers use Microsoft products. Microsoft is giving its customers a choice: continue to pay for software on premises, or let Microsoft access your data and charge you based on what your organization is actually using. Microsoft isn’t the only game in town though – other major cloud providers like Amazon, Google and IBM are also shifting toward flexible Consumption-based models for their enterprise customers.
Microsoft isn’t even the only Microsoft option either – Linux hosting companies like Digital Ocean and Microsoft competitor Red Hat offer similar options to help businesses manage subscriptions for Microsoft, Linux and open source software. Microsoft’s future is in Consumption-based cloud services, so if you’re a Microsoft enterprise customer, it might be worth reevaluating Microsoft licensing options to make sure your organization is getting the best deal.
After all, Microsoft has invested heavily in making their cloud platform competitive with Amazon Web Services and Google Cloud Platform – Microsoft doesn’t want to lose their enterprise customers, but Microsoft also knows it needs to make its products more affordable for smaller organizations. Microsoft’s license cost increase will certainly affect many small businesses in the future – but Microsoft is giving you several years of advanced warning before Microsoft makes any pricing changes.
Microsoft clients with Enterprise Agreements won’t be affected at all – Microsoft says it will never increase the price of Microsoft software with an Enterprise Agreement. Microsoft Open Business customers will be able to maintain their current license plan for several years – Microsoft provides a 12-month notice before making any Microsoft software pricing changes, and Microsoft Open Business customers will get at least 15 months of warning before Microsoft’s prices increase.
Microsoft Consumption-based pricing is designed for Microsoft cloud customers, so Microsoft enterprise clients with Microsoft Volume Licensing agreements aren’t impacted by Microsoft’s new licensing plan.
Microsoft is moving toward a Consumption-based business model because it allows them to price their software more competitively in the cloud. Microsoft’s original Open Business licensing allowed customers to purchase software and run it on premises indefinitely – but Microsoft didn’t include client access licenses (CALs) in the price.
In other words, organizations were paying for Microsoft server products to use without ever being charged again for access. This enabled businesses to save money in the short term, even though Microsoft was giving them the ability to use their products for free. Microsoft’s Consumption-based licensing model means organizations only pay Microsoft when they actually use Microsoft products – Microsoft will give you a CAL to access Microsoft software on premises, but if you don’t need it, Microsoft isn’t billing you for it.
Microsoft estimates that the average Microsoft customer spends about $1,500 a year on Microsoft services – Microsoft’s Consumption-based model isn’t necessarily better for Microsoft business customers, but Microsoft is giving its cloud consumers the option to save money by only paying Microsoft when they use Microsoft products.
The move toward Microsoft Consumption-based licensing doesn’t mean Microsoft is abandoning enterprise clients – Microsoft Volume Licensing agreements will continue unchanged for Enterprise Agreement customers. Open Business Microsoft customers will have 15 months of warning before Microsoft makes any Microsoft software pricing changes, while Microsoft Cloud Solution Providers (CSPs) get 12 months’ notice. Microsoft Volume Licensing Enterprise Agreement customers don’t need to switch over to Consumption-based licensing – but they will receive the option in 2020.
It’s important Microsoft enterprise clients don’t misunderstand Microsoft’s move toward Microsoft Consumption-based licensing. Microsoft isn’t abandoning Microsoft Volume Licensing agreements – but Microsoft is providing new options for its cloud business customers, which might be attractive to smaller organizations that are accustomed to paying up front for Microsoft software.
Microsoft Software License Changes Could Affect Small Businesses in 2021 Microsoft plans to make Microsoft software licensing changes in 2020 – Microsoft Reveals Price Hikes for Microsoft Software Microsoft launches Microsoft Cloud price increases Microsoft Volume Licensing changes explained
By 2021, Microsoft plans to switch everyone over to Microsoft Consumption-based pricing. If you’re a small business that’s not actively using cloud services, you don’t have anything to worry about. Microsoft won’t go back to Microsoft Open Business pricing – Microsoft’s current Microsoft Volume Licensing agreements will continue unchanged. Microsoft hasn’t revealed specifics about Microsoft Consumption-based pricing, but the company does plan to introduce Microsoft Consumption-based licensing in 2020 and move everyone over to Microsoft Consumption-based pricing by 2021.
Microsoft has already started phasing in Microsoft Consumption-based licensing for Microsoft Cloud products. Microsoft is currently offering Microsoft Cloud consumers the option to purchase Microsoft software monthly or pay an annual subscription rate – Microsoft gave Microsoft CSPs (Cloud Solution Providers) 12 months’ notice about Microsoft’s move toward Microsoft Consumption-based licensing, but Microsoft hasn’t given smaller Microsoft Volume Licensing customers 12 months’ notice Microsoft Consumption-based licensing.
Microsoft is giving Microsoft Volume Licensing customers 15 months of warning before Microsoft makes any Microsoft software pricing changes – and Microsoft’s 2020 date for Microsoft consumers to begin using Microsoft Consumption-based licensing doesn’t apply to Microsoft Volume Licensing agreements.
Microsoft is offering Windows 10 licenses as an option for Microsoft Cloud consumers – Microsoft Volume Licensing customers aren’t required to switch over, but Microsoft is making Microsoft software available for Microsoft Consumption-based licensing. Microsoft’s upcoming Microsoft Consumption-based pricing will give Microsoft cloud consumers the option to purchase Microsoft software monthly or pay an annual subscription fee.
Microsoft currently offers Windows 10 licenses as an optional purchase for Microsoft Cloud users, and Microsoft has started phasing in Microsoft Volume Licensing Microsoft consumption-based pricing. Microsoft hasn’t revealed details about Microsoft Consumption-based licensing – but Microsoft wants everyone to start using Microsoft consumption-based software by 2021.
Microsoft’s 2020 date for Microsoft consumption-based licensing doesn’t apply to Microsoft Volume Licensing agreements – 15 months’ warning is enough Microsoft Microsoft has given Microsoft Volume Licensing customers 15 months’ notice Microsoft Microsoft won’t switch Microsoft Volume Licensing over to Microsoft Consumption-based licensing before 2020.