Microsoft’s new ‘modern commerce’ roll-out is increasing pressures on SPLA (services provider license agreement) users – and, in turn, downstream on business end-users.

The SPLA program enables service providers and independent software vendors to host remote systems for business users and be responsible to Microsoft for all their customers’ Microsoft program usage.

The scheme is widespread for hosted websites, platform infrastructure services and specific line of business applications. Indeed, this area of business is increasing year-on-year. Currently, there are over 135 resellers mandated by Microsoft in Europe to authorise organizations that want to offer hosted software and services to end customers and to accept their monthly-reporting.

End users therefore do not need to deal with Microsoft direct and can benefit from the shared infrastructure as well as flexibility and upgrades.

However, it’s evident that there’s increasing pressure on businesses end-users to move themselves direct to Microsoft’s own hosted platform Azure and accordingly the SPLA environment is coming under more intense scrutiny from Microsoft. And prices are increasing significantly from January 1.

SPLA providers report total usage monthly for all eligible products in respect of their customers on three license models: per subscriber; per processor license; or per core.

Subscriber Access Licenses (SALs) are not required to access products licensed by the provider on the processor or core models eg Microsoft Dynamics ERP products or Microsoft SQL Server.  Office is only licensed here on the subscriber basis.

The provider is therefore paying monthly for all monthly consumption of its customers but of course can resell at higher prices.  Some providers take advantage of the preferential wholesale pricing for their own internal Microsoft usage. However there is a limit on this of 50% of the total use by all of its end users. Additionally, the software product use rights (SPUR) must not restrict internal use.

Although this delegated structure is attractive, there are significant issues in Microsoft audits for the services providers.

Licensing is predicated on self-reporting by the provider up to the reseller. Microsoft however regularly intervenes to initiate demanding audits. It usually commissions KPMG or PricewaterhouseCoopers to produce a ‘Microsoft SAM Baseline Review’ and then issues its demands from there.

These audits are not easy for many reasons:

• Provisions in the license agreement require ‘access to all servers running the Products’;
• No credit is given for over-payments in earlier monthly usage reports;
• All settlements for historic usage are made at current prices – even if the audit process itself has extended into a new calendar year;
• There is penalty pricing at 125% for all unreported usage;
• Providers often have difficulties in obtaining details of customer’s mobility rights if they have software assurance for their own bought licenses;
• Software uninstalled after the audit is stated will still be shown as deployed in the audit report;
• Full usage from start of end-user’s contractual relationship with the service provider is presumed even if consumption did not start then;
• If the services provider has no access to the VMs used by the customer it is still is liable for their usage;
• Internal testing and evaluation is free of charge for the customer – but only for 90 days; and
• Microsoft gives virtually no flexibility on pricing insisting that all its SPLA customers are treated equally.

A SPLA relationship does give significant freedom to the services provider with the facility to sign up and activate new customers quickly. The danger is that, where there are no intense controls on the customers’ usage and on correct reporting, that there will be considerable pain and cost when the (inevitable) audit is initiated.

Microsoft’s price increases here are, in part, to level the playing field under its ‘modern commerce’ initiative but also in part to move end users to the cloud with direct relationships with Microsoft via Azure or Office 365.

In the meantime, SPLA audit activity is increasing with inevitable demands on the services providers which in turn is passed on to the end users.

Robin Fry