Anyone who is even remotely familiar with Microsoft®’s Volume Licensing knows how complex and confusing it can be. I’m not going to defend it but I will attempt to share some insight into the history and some of the factors that lead to the challenges we face when trying to interpret VL today.
Microsoft®’s business model is based upon software licensing, which dates back to licensing MS-DOS® to IBM® in 1980. This was not only significant because it represented the company’s first big break, but also because of the terms of the agreement. IBM® wanted an exclusive agreement which would prohibit MS® from licensing the OS to anyone else. IBM® was a huge company and securing a deal with them could make or break Microsoft®. Bill Gates and Paul Allen believed that in spite of IBM®s dominant market presence, the potential market for personal computers would far exceed that of even IBM®s enviable reach. They managed to close the deal without exclusivity. Bill and Paul believed that if PCs were as successful as they hoped, the sum total of multiple OEMs would even exceed the size of IBM®. They also believed that by licensing their OS to multiple OEMs, they would create a market and industry standard with which no one else could compete.
OEM royalties from MS-DOS® and subsequent products funded the company for many years that followed and still represent a substantial percentage of revenue today.
By the early 1990s when Local and Wide Area Networks were becoming more common, corporate customers began demanding some sort of licensing programs for MS® software. Prior to that time customers had to purchase multiple finished goods packages and retain proof of purchase for each unit.
In 1993 MS® introduced the Microsoft® Volume Licensing Program or MVLP as it was known at the time. The plan was to ship every business related product in every language to corporate customers and let them select which ones to use and on how many systems, then report usage back to MS®. The deliverable was a “Welcome Kit” which contained CDs with images to enable the user to create 3.5” or 5.25” diskettes as well as a utility to enable network installation. As with today, there were three product pools: Application, System, and Server. The first Welcome Kit contained approximately 30 products in as many as eleven languages although that number is artificially high by today’s standards because utilities such as Spell and Thesaurus were considered standalone products at the time. There were a total of eight CDs in the first Welcome Kit (including Mac Apps).
Microsoft® continued to update the Welcome Kit quarterly until 2009 when it contained 255 CDs for English language alone. Today, the Volume Licensing Service Center (VLSC) provides download access to current (N) and the previous version (N-1) of products although customers may still order physical media (CD/DVD) through the VLSC.
It would be nice if all of those products in all of those languages could be licensed and managed by a single set of rules, but the culture and business model at MS® prevents that from happening. Microsoft® is not a company that is strictly managed from the top down. From an external perspective that may seem illogical, but the decision making at Microsoft® is often decentralized. Microsoft®’s culture has traditionally been one in which employees and divisions have the autonomy and authority to make many of their own decisions. An MS® subsidiary in a particular country may elect to market and price certain products differently than elsewhere. This may be due to competitive influence, product localization schedules, or regional technical capabilities.
There have been times when critics and competitors have suggested that MS® should be broken into multiple companies, accusing them of collaborating between divisions, thereby giving the company an unfair competitive advantage. The reality is that Microsoft® already operates as multiple companies; they just share the same name. Even the Windows® and Office business units in Redmond operate very independently of each other.
Of course Microsoft® has a large organization that focuses solely on Volume Licensing, but their role is to collect and combine disparate requirements rather than dictate a cohesive global licensing program.
Changes in technology also contribute to the complexity of licensing. Developments such as virtualization, mobile devices, and cloud computing have all forced MS® to modify licensing terms. Many of these modifications initiate transition complications for existing customers and may require exceptions for some products or regions.
The simple fact that Microsoft® has so many products and sells in virtually every country also contributes to the complexity of the program. As previously noted, regional subsidiaries react to local markets and economies. Additionally, many VL agreements are with customers with a multi-national presence, all of which are governed by the same agreement. Microsoft® could not compete in many regions if they weren’t sensitive to local markets.
There are also factors to suggest that the VL complexities may be intentional, or at least that MS® has little incentive to simplify the program. Customers know they must remain compliant with the terms of their agreement. Non-compliance by using pirated software or unauthorized user or device access can lead to substantial fines and legal fees. Some companies intentionally purchase more CALs than they need so as to ensure that they are compliant in the event of an audit. There are also scenarios in which customers pay for more than they need because they simply don’t know the rules.
Customers may complain about VL but they are still buying and VL revenues continue to increase. Any major overhaul would result in a myriad of transition issues which would likely have at least a short term negative impact on MS® revenue and customer relations. It would also conflict with the decentralized decision making previously noted.
Microsoft® claims to be sensitive to the issue and they occasionally make minor adjustments to the program, but a major overhaul appears very unlikely. Even if they were to attempt significant changes, the result would likely be something different, but just as complicated.
Navigating the Complexity
Purchasing a software license does not mean the user may use the product(s) however they wish. This is true whether it’s a consumer who buys a full packaged product or an enterprise with hundreds of thousands of systems. Microsoft® sells licenses which the user must adhere to or risk legal and potentially punitive action. Understanding some fundamental elements to Microsoft®’s VL program will enable customers to at least become familiar with the program and determine whether they can navigate the acquisition process themselves or if it may be wise to seek assistance. It’s important to note that seeking “assistance” doesn’t necessarily mean relying upon Microsoft® or their channel partners for help. Either party will help you spend your money, but they are in business to maximize their own revenues and may not be as motivated to save you money as would a consultant or third party expert acting on your behalf.
Microsoft® licenses their products in two broad categories: For organizations with five to 250 PCs, devices, or users, and organizations with more than 250 PCs, devices, or users. That determination should be easy so then it’s time to move on to the products you need and how you wish to structure payment.
In most cases you will have the option to buy perpetual or non-perpetual licenses.
With a perpetual license, you pay for the license and have the right to use the software indefinitely. Non-perpetual may be best described as subscription based licensing as you may use the products only as long as you pay for your subscription. Non-perpetual license agreements can be an excellent way to minimize initial cost and spread the payments over the term of the agreement although you may wish to inquire about Microsoft® Payment Solutions (aka Microsoft® Financing) if you’re considering a subscription solely as a means to amortize payments.
By combining volume pricing with the elimination of physical media, documentation, and packaging, Volume Licensing is typically the most cost effective and efficient method of running software on multiple computers within an organization. Of course Microsoft® will always charge as much as the market will bear, but since there is no practical alternative VL becomes the solution of choice for most organizations.
In addition to volume pricing and simplified administration, Volume Licensing offers benefits such as Software Assurance (SA). With SA, users receive all product updates during the term of their agreement so customers are always licensed for the most current version of the applicable software, plus support, planning services, training, and IT tools. SA is included with some programs and is an optional purchase with others.
The primary offering for organizations with fewer than 250 users or devices is Microsoft® Open, which consists of the following three options:
- Open Value – Three year perpetual agreement intended for organizations seeking the advantages of Software Assurance, simplified license management, and an annual payment structure.
- Open Value Subscription – Three year non-perpetual agreement, providing the lowest upfront cost. Software Assurance is included.
- Open License – Two year perpetual agreement with option to purchase Software Assurance. Payment is due upon signing.
Organizations with more than 250 users or devices may choose between an Enterprise Agreement (EA) and Select Plus which may be summarized as follows:
- Enterprise Agreement (EA) – Three year perpetual agreement which includes SA, offering the best overall pricing. EA allows users to standardize their IT platform and combine local and cloud services under a single agreement. By adding Enterprise Enrollment, EA customers can license solution-focused products such as Windows®, Office, Office® 365, and Intune®.
- Enterprise Agreement Subscription – Non-perpetual equivalent to EA
- Select Plus – Perpetual agreement with the option to purchase SA. Select Plus offers volume pricing on transactional purchases across an organization wanting a mix of products while still receiving a consistent discount.
Microsoft® Cloud Services
Whether your company has a formal strategy for dealing with cloud computing today or it’s something you’re putting off, it will almost certainly be a requirement before the end of a three year EA Agreement signed today. An Enterprise Agreement provides the flexibility to leverage the cloud by adding cloud based services such as Office 365™, Windows Intune™, Windows Azure™, and MS Dynamics® CRM Online. Additionally, with EA and SA you typically receive the most favorable pricing and terms for tools to facilitate remote access to either cloud based or in-house server based products as well as rights to use portable devices such as tablets which may or may not be owned by the company.
Levels of Detail
The preceding summary of Microsoft® Open, EA, and Select is intended to provide the highest level snapshot of Microsoft®’s Volume Licensing Program. Within each of those categories are multiple subsets of offerings, each with their own pricing, terms, and conditions. For example, in addition to commercial business, most programs include modified offerings for government, health care, education, and nonprofit charitable organizations.
At yet another (critical) level of detail, customers must understand exactly how their licensed products may be used. Most server hosted products require a Client Access License (CAL) for every user or device that will access the server. A CAL is not a software product but rather, a license that grants a user or device the right to access the server. Those rights may be further differentiated by whether the user or device is owned by the company or whether the user or device is accessing the server locally or remotely. You may have an option to purchase either a User CAL or a Device CAL. Microsoft® has simplified the process in some cases by offering CAL Suites such as the Enterprise CAL Suite which includes use rights for multiple productivity and core infrastructure products.
The purpose of this article has not been to confuse or discourage the reader from pursuing a Volume Licensing Agreement with Microsoft®. As previously noted, you may not have a choice, but it’s important to know what you’re getting into. There are a number of third party resources available to assist you throughout the process. The Microsoft® Volume Licensing home page http://www.Microsoft.com/licensing/ offers a number of documents, guides, and program overviews. The Volume Licensing Reference Guide, Product List, Product Use Rights, and Product Use Rights Explained are particularly valuable.
The VL Reference Guide provides a comprehensive look at MS® licensing and it’s updated when necessary. Once a customer is familiar with Microsoft® VL, they will rely heavily upon the Product List and Product Use Rights (PUR). Both are regularly updated (typically monthly) and contain necessary information about product availability and usage.
The Product List provides information about software and online services available through Volume Licensing. This includes new releases, discontinuations, Point Values (Select Plus), promotions, migration paths between versions, SA benefits, and notes or product specific information.
The Product Use Rights document contains rights for specific product usage and also rights that apply to all products licensed under VL. Understanding and adhering to applicable content in the PUR is critical as a means to ensure compliance with the terms of your VL Agreement.
Product Use Rights Explained, as the name suggests, is Microsoft®’s document to help navigate the PUR.
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