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Azure licensing reduces pay-as-you-go options

Changes to Azure licensing options that streamline pay-as-you-go options underscore Microsoft's subscription-based business model and its commitment to channel partners.

Microsoft cut back on the licensing variants for on-demand Azure usage, but it's unclear if the streamlining actually...

makes it easier for users.*

Starting this month, new customers under the Microsoft Products and Services Agreement (MPSA) will no longer be able to use Azure services with pay-as-you-go pricing – a staple of public cloud adoption. Instead, they will be guided to the Azure partner network for pay-as-you-go services.

There is still a pay-as-you-go option without any long-term commitments through the Microsoft Online Subscription Program (MOSP). Customers will be notified at least 30 days in advance of any price changes or fees incurred from newer services, and the subscription can be cancelled at any time.

Microsoft characterizes the MPSA as a simplified contract to use its products, including cloud services. It's intended to provide flexibility and self-service options for organizations with more than 250 users, according to the company. Current MPSA customers will still be able to purchase Azure in a pay-as-you-go model.

One of the problems with this change is that MOSP purchases don't roll up into points that customers can accumulate to obtain discounts as they do with the MPSA, said Paul DeGroot, principal consultant at Pica Communications LLC in Camano Island, Wash. The MOSP has multiple billing arrangements, and the options for pay-as-you-go on Azure fall short of the structures provided by Amazon, he added.

"I don't get why they bothered to take it out of the MPSA," he said. "I don't see how it makes it simpler to put it in MOSP. Was there a problem with the MPSA?"

The other problem means to access pay-as-you-go Azure services come with strings attached. Customers will either be redirected to members of Microsoft's Cloud Solution Provider Program to choose an alternative with a reseller, or customers can sign up for the Enterprise Agreement, which requires a three-year commitment.

Unlike AWS, Microsoft has a legacy business to protect, so it must balance those demands and keep its various licenses manageable, DeGroot said. One example of this contrast is discounts, which AWS offers based on usage, and Microsoft offers based on the number of customer desktops.

"Amazon doesn't sell apps or software -- it's not part of its revenue stream," he said. "So, they don't care what version of Office or Exchange you're on."

Microsoft's goal with the cloud is to generate a steady stream of annuity income, DeGroot said. For users, a shift to subscriptions means upfront commitments, and for Microsoft, more control over the versions they use.

The decision is part of an effort to streamline Azure licensing to address three primary demands: "partner-value added, self-serve web and the Microsoft-assisted ways that best meet customers' needs," according to a blog post from Richard Smith, general manager of commercial licensing at Microsoft.

The Cloud Solution Provider model can work for companies that aren't large enough to have a Microsoft account manager guide them through the growing list of Azure services, said Paul Maher, CTO of life technology solutions and principal at Milliman Inc., an actuarial services provider based in Seattle and Azure customer. When such a company wants to consume a specific product, such as Power BI or Office365, it can be worth it to swallow the markup to simplify the procurement process.

"It's going in the right direction," Maher said. "You've got this proliferation of products and services that's hard to understand -- and especially in pay-as-you-go [pricing], it's harder to figure out the more you use it."

With fewer Azure licensing options, Microsoft customers can add and test the company's cloud services more organically, he added. As IT shops add more and more services, however, that mix-and-match approach with resellers becomes too complex.

Enterprises prefer stability, discounts

For large corporations, pay-as-you-go pricing isn't a panacea. Despite the long-term commitment the Microsoft Enterprise Agreement requires, it can save customers between 15% and 45%, compared with standard prices.

Milliman, which offers pay-as-you-go pricing to its customers on top of Azure, relies on its Microsoft Enterprise Agreement to consume Azure resources and sell them to other enterprises. There is some risk in prepayment, but it is the simplest means to procure resources and get discounts that would otherwise be unavailable, Maher said.

The notion that you're going to just come in and buy what you need, and turn it off when you don't, disappears.
Paul DeGrootprincipal consultant, Pica Communications

"It works well with traditional licensing across a lot of the Microsoft products, and it's the bread and butter of how Microsoft has done things for years," Maher said.

Microsoft puts tremendous pressure on customers to move to Azure when they renew their contracts, DeGroot said. This often includes Azure credits and discounts as part of new enterprise licensing, whether or not the customer asks for them.

"They feel some confidence that the product is attractive enough that [enterprises] will make commitments to the product over a period of time," DeGroot said. "That way the notion that you're going to just come in and buy what you need, and turn it off when you don't, disappears."

Relatively few customers, so far, can justify the business case to invest heavily in Azure, which is why Microsoft is pushing hard to align its cloud services to customers' IT demands, DeGroot said.

"The customer is not sure how they will absorb this," he said. "It's quite popular with developers, but they're usually not buying huge quantities, and it doesn't result in the customer with some eternal commitment."

*Editor's note: Due to outdated and erroneous information, this article previously stated that Microsoft had eliminated the pay-as-you-go option for Azure without any long-term commitments.

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