Analysing Microsoft Azure Dedicated Host and licensing changes: Risk, rage, and reward

Updated August 14 Microsoft is modifying some of its Azure licensing terms for dedicated hosted cloud services, with a knock-on effect of making services more expensive for customers of Amazon Web Services (AWS), Google and Alibaba Cloud.

The move coincides with Microsoft launching Azure Dedicated Host, a service that enables users to run Linux and Windows VMs on single-tenant physical servers.

The overall rationale for the service was outlined by the Azure team in a blog post. “The emergence of dedicated hosted cloud services has blurred the line between traditional outsourcing and cloud services, and has led to the use of on-premises licenses on cloud services,” a post read. “Dedicated hosted cloud services by major public cloud providers typically offer global elastic scale, on-demand provisioning and a pay-as-you-go model, similar to multi-tenant cloud services.

“As a result, we’re updating the outsourcing terms for Microsoft on-premises licenses to clarify the distinction between on-premises/traditional outsourcing and cloud services and create more consistent licensing terms across multi-tenant and dedicated hosted cloud services.”

Starting from October, customers who buy on-premises licenses without ‘software assurance and mobility rights’ cannot be deployed with dedicated hosted cloud services offered by the three big competitors, including VMware Cloud on AWS. Microsoft added these changes did not apply to other providers.

Owen Rogers, research vice president for digital economics at 451 Research, noted an example of how some companies used multiple providers. “Back when Azure didn’t offer dedicated hosts, some AWS customers installed Windows Server Datacenter on an AWS dedicated host – as a result, all virtualised operating systems on the host were licensed to run Windows Server, from the single host license, which aided migrations and license management plus lowered costs,” Rogers told CloudTech.

Microsoft however noted that, with regards to Windows Server, customers could still continue to use WS licenses on dedicated hosts from AWS, Google and Alibaba's clouds if those licenses were purchased before October 1.

It is safe to say that AWS responded to the news with claws out. Writing on LinkedIn Sandy Carter, AWS vice president, argued the announcements “certainly seem like they’ve been taken from the old guard software vendor playbook.” Amazon CTO Werner Vogels was similarly dismissive, writing on Twitter.

Carter cited eMarketer as an example of a customer which had begun its digital transformation journey on Azure but had moved to the other side. “The cloud enables your company’s agility and innovation. Do you really want to bring along the licensing baggage of the old world, especially if those rights continue to change?” wrote Carter. “At AWS, our goal is to provide our customers with choice.”

Choice at what cost, however? This statement may raise the odd eyebrow for those who have been monitoring the recent rumbles around open source and big cloud providers. MongoDB, Confluent and Redis Labs were three companies who had modified their licensing because of major cloud providers who ‘take the open source code, bake it into [their] cloud offering and put all their own investments into differentiated proprietary offerings’, as Confluent co-founder Jay Kreps put it last year.

Redis CEO Ofer Bengal told this publication in February that, aside from AWS, ‘the mood [was] trying to change’, inferring that partnerships between open source cos and big clouds were on the horizon. Lo and behold, less than two months later, Google Cloud announced partnerships with seven open source vendors – including all of the above.

“[The move] is controversial because Azure is restricting freedom of choice regarding where its software can be hosted, and is using its software to undercut its competition,” added Rogers. “Many will say this is just good business sense – Microsoft has invested billions in its software and services over the years, why shouldn’t it use its assets to capitalise on the opportunity? Others will say that some enterprises will have to pay more as a result without getting more value in return.

“The risk is that this move doesn’t encourage customers to move to Azure, but rather encourages customers to migrate to Microsoft’s competitors’ services,” added Rogers.

Ultimately, both sides appear to be looking out for number one – an understandable position given the long-standing supersonic growth from the hyperscale clouds appears to be on the wane. As Synergy Research puts it, this is more the ‘law of large numbers’ taking its inevitable effect – but perhaps the well-known proverb around stones and glass houses may also apply.

Update: A previous version of this article claimed that Microsoft is 'saying you won't be able to install Windows Server on a dedicated host at all, unless you use Azure.' Microsoft has reached out to CloudTech to state this is not correct. "To be clear, the outsourcing updates have no impact on customers deploying licenses with traditional outsourcers or in their own data centres," a statement read.

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