Walking Away From a Microsoft Licensing Agreement

When finances are tight it's not uncommon for companies to start expiring their maintenance contracts, including software maintenance. As with any maintenance agreement that is allowed to expire, it's important that an organization understand the full implications of their actions so that it is a strategic event rather than a reactionary one. 

This is a big topic so will cover several postings - check back for more updates or e-mail us with specific questions. 

Microsoft has three primary ways for an organization to acquire licensing rights - subscription licensing (Microsoft Desktop Optimization Pack aka MDOP is an example), perpetual licensing (their traditional model where once you buy it you own the rights forever), or perpetual with maintenance (Microsoft Software Assurance aka SA). 

Subscription licensing expires at the end of the subscription agreement (unless there is a buy-out option). I'm not going into details on this type for this article. 

Perpetual licensing does not expire but also does not have upgrade rights. So again will not be discussed in this article. 

Perpetual licensing with Software Assurance includes upgrade rights until the SA expires. When SA expires, your organization is entitled to the latest version of the product which has been released to volume licensing customers. Those licenses then become perpetual licenses but inherit the licensing terms from the agreement under which they were acquired. 

For example, a customer who had a full platform Microsoft Enterprise Agreement (which automatically includes SA) which they allowed to expire at the end of May 2010 would walk away with perpetual licenses for the following Microsoft products: Office Professional Plus 2010, Windows Server 2008 Client Access License (CAL), Exchange Server 2010 Standard CAL, SharePoint Server 2010 Standard CAL, System Center Configuration Manager 2007 R2 Client Management License and Windows 7 Enterprise (but be aware of any subscription components, those are not perpetual). However; those perpetual licenses will always be restricted to the licensing rights under the Enterprise Agreement (for example, no secondary use rights for Microsoft Office which means if a user has a desktop and a laptop each would require its own license). 

While a license is covered under SA, it is at it's most flexible. Consider your future plans prior to allowing SA to expire. A couple of things to think about: 1) Will you be using any of the enhanced functionality of the Microsoft Enterprise CAL Suite? 2) Will you be increasing your server virtualization efforts and will Microsoft Windows Enterprise Server or Microsoft Windows Datacenter edition provide you with a more cost effective solution? 3) Are you licensed under Device CALs when User CALs might be more effective or vice versa - these can only be changed at time of renewal and guess what...you're not renewing. 

However; now is still the time to push the envelope on this (before expiration) as there are ways of getting this changed as long as you still have active SA. The first two scenario's would be covered by "Step-up" licenses from lower versions carrying SA. This allows you to leverage the monies you've already spent on the lesser edition by paying a reduced price for the higher edition but can only be completed while you have active SA on the product. 

Watch for more to come...or if you're considering walking away from a Microsoft Licensing Agreement talk to us first, it can help you avoid future costs and headaches!

Microsoft Revamps Partner Program – Costly licensing impact on Partners?

Microsoft has a very generous internal use license program for its partners. In generalities, a Microsoft Certified Partner gets 25 copies of most all desktop software (and Client Access Licenses – CALs) and 1 or 2 server licenses each for most server technology for internal use in the form of annual license grants; a Microsoft Gold Certified Partner gets 100 copies of most desktop software and 1 to 5 server licenses each for most server software. There are additional license grants based upon expertise “competency”. These amounts can be multiplied by each location that qualifies at the same level as the overall company up to a maximum (along the lines of 500 desktop and 2 to 25 servers for Microsoft Gold Partners). 

 These license grants are obviously very valuable to Microsoft Partners in helping them minimize the cost of running their organization. However; Microsoft is now changing their partner program (for the first time in a long time) which will end up reducing the number of internal use software license grants for most partners. The new Microsoft Partner Network will replace the designations of Registered, Certified and Gold Certified with Subscriber, Competency and Advanced Competency. While there are some changes at the Registered and Certified levels (Subscriber and Competency) as it pertains to licensing the real impact comes to Gold Certified Partners who will not qualify for the Advanced Competency designation. $300k Example: One of my Software Asset Management customers is a Microsoft Gold Certified Partner with 1 additional enrolled location and several competencies. This entitles them to about 200 copies of most desktop software and CALs and a number of server licenses including 10 Microsoft Windows Server Enterprise license grants and 8 Microsoft Windows Server Datacenter processor license grants. However; this company will not qualify as an Advanced Competency partner so will instead drop down to a Competency Partner (think Certified Partner). Assuming they continue to have 1 additional enrolled location this will drop their license grants to 50 copies of most desktop software and CALs and about 2 server licenses for some servers (Microsoft Windows Server Datacenter will not be included). The financial implication of this is over $300k. 

Even those partners that do not lose their current level in the program will feel some impact from licenses being excluded from the core licensing (for example, Windows Server Datacenter edition will not be part of the core licenses). One of the hardest challenges is that IT typically manages the licenses and yet the business typically manages the partnering relationships. If these impacts are not discussed between both teams internally there could be a large number of former Microsoft partners who are now out of compliance in their licensing. 

Understanding the Dates: Each year partners have to re-enroll in the program. Those partners who re-enroll prior to 10/10/2010 (now changed to end of October) will be renewing under the existing designations of Registered, Certified or Gold Certified and will have their annual license grants based upon that enrollment. At their anniversary date in 2011 their licensing grants would change. For partners who re-enroll after 10/10/2010 (now changed to end of October) they will be renewing under the new designations and the new licensing grants will take effect. There are other changes that take effect regardless of enrollment status effective 10/10/2010 (now changed to end of October) so please be aware that this information is only as it pertains to license grants. 

What to Do: Obviously it is very important for current Microsoft Partner’s to clearly understand the requirements of the new program and where their company will fit within this program. Microsoft is doing a lot to help and their Partner desk is extremely helpful so leverage these resources! Take a good look at the license calculator tool to determine what your new license grants will be and start the budgeting and communication process internally to avoid a surprise hit to your software budget next year. If things get too confusing or time consuming, consider hiring a professional to handle the transition for you.

Mergers & Acquisitions - Software Licensing in the Due Diligence Process

It's been said that 2010 is the year of M&A (LOL...again, there have been many years in the past that have also held that moniker) and having just seen a posting on LinkedIn on this topic reminded me that it's probably time to blog about it again (check out my earlier posting on this topic for additional information).



There are lots of things to be considered, but I'm going to focus on the company doing the acquiring for this posting - if you need other scenarios check out our whitepaper on the topic.



There are typically two scenarios in acquiring: (1) you don't acquire any of the IT assets, or (2) you acquire all the assets of the company, including IT assets. The first scenario is simple as you know walking in that you have to provide these assets yourself. The second scenario is where the waters get muddy.



If acquiring all of the assets, the assumption is typically made that all the software installed at time of acquisition is (a) properly licensed and (b) the license will transfer to the acquiring company. Unfortunately, these are both naive assumptions and too frequently incorrect.



In the ideal situation, IT would have the opportunity to receive the licensing statement (including copies of contracts and proof of licensing) for the company being acquired in advance so it could be factored into the valuation of the company (remember software is frequently the 2nd or 3rd largest line item in the IT budget and represents significant expense).



However; reality is that acquisitions are typically completed without IT's involvement or even if IT is involved they are very limited in the information that can be shared in advance of the completion of the deal.



So, how can IT help the company avoid acquiring someone else's licensing headache? Through education and quick follow up.



A couple of basic steps:

1) Get the issue on the table in advance of M&A activity. During M&A you're going to have a hard time getting the attention of the proper parties so preempt the situation.

2) Get some allies on the topic - legal counsel, CFO, compliance officer and purchasing officer are all key allies. Obviously this means senior level IT to senior level operations discussions.

3) Create a high level IT due diligence checklist of what IT truly needs to (a) help avoid large unnecessary costs and (b) ease integration post acquisition.

4) With the aid of your allies, get the IT due diligence checklist added to the overall company due diligence checklist. Be prepared for push back and be able to quantify through hard dollar and compliance risks the reason behind each item.

5) Post acqusition, work fast. Not only do you have a mandate to get the company integrated but you also need to ensure that if there are any licensing costs associated with acquisition that you're able to identify those for proper accounting in the financial statements as part of the acquisition cost.



Get help - understanding the licensing terms for each major publisher and the transferability of those licenses can be a daunting task. Now is the time to focus on integrating your two companies, have an expert handle the acqusition licensing issues for you.



Any other suggestions? Post them!