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How Office 365 is changing the Microsoft Enterprise Agreement

Microsoft is making dramatic changes to its premiere volume-licensing agreement in order to keep it relevant during an age of sophisticated online productivity applications. When Office 365 is released later this year, Enterprise Agreement customers will find much of the agreement's rigidity gone -- at least that’s the case for businesses willing to start moving from on-premises servers to servers hosted by Microsoft. These changes include the advent of "true-downs," the ability to offer different functionality to subsets of users, and per-user licensing for Office.

True-downs

The traditional Enterprise Agreement (EA) covers all desktops in an organization with up to three licenses: Windows upgrades, the latest version of Office and a suite of client access licenses (CALs). The CALs are required to access common servers such as Windows, Exchange and SharePoint. Customers pay a fixed price per desktop over three years for the products. EA's virtues are its great discounts, built-in upgrades and ease of license management. It's easier to count the number of devices or users than it is to conduct a computer-by-computer software inventory.

If an enterprise adds more users or computers, it will pay a "true-up" fee at the next anniversary of its three-year agreement. If the number of users or computers decreases, however, the customer doesn't automatically pay less. This requires a special plea to Microsoft, which guarantees only to “consider” the requests.

However, Office 365 customers -- or those with a hybrid of Office 365 and on-premises licenses -- will be able to reduce the number of online user licenses (within limits). This provides greater flexibility in managing licensing costs. In addition, customers will be able move users between online and on-premises licenses, and they can also provide some users who only need e-mail access with less-expensive online service licenses.

Another significant change is that companies without a current EA can get one that includes only online services. This agreement doesn't require companywide licensing. Therefore, an organization with 1,000 users can start an EA that covers only 250 users (the minimum) for online services.

More diverse application selection

Office 365 extends the list of products and options that count toward an EA's minimum requirements. No fewer than seven different combinations of user subscription licenses (USLs) -- the online services substitute for CALs -- are available.While Microsoft only slightly broadened the number of products, customers can choose from four bundles that license anything from the equivalent of the Core CAL Suite plus Lync to three more expansive suites that add options for Office Web Apps, a subscription to Office Professional Plus, Lync voice-over-Internet, unified messaging, and SharePoint-hosted Excel, Access, and Visio files.

Furthermore, while the choice of products licensed companywide was made at the start of a traditional EA and was difficult to change, customers can now freely mix and switch among the four bundles, identified as E1 to E4.

Customers can also unbundle the services and subscribe to them separately, outside of an EA. These services include two levels of service for Exchange, SharePoint and Lync; Office Web Apps (combined with SharePoint, which delivers Office Web Apps functionality); and a subscription to Office.

The two levels of USLs offered for each of these will be familiar to on-premises licensees as rough proxies for Standard and Enterprise CALs. For example, Exchange Online Plan 1 offers the basic email, calendaring and contacts functions licensed by the Exchange Standard CAL. Exchange Online Plan 2 adds voicemail and archiving features licensed for on-premises systems by the Exchange Enterprise CAL.

Office subscriptions

One of the most remarkable additions to Office 365 is the Office subscription. Unlike everything else offered through Office 365, Office is not an online product but instead Office Professional Plus for installation on a PC. In every other licensing program, Office is licensed per device -- although Microsoft allows installation on a second, portable device if it's owned by the user of the first device.

As a $12 per-user, per month subscription, it's not only barely half the price of the $268 a year that an EA customer pays, but it can also be installed on multiple devices (such as a desktop, an iPad and a portable device) for use by one person.

The low price comes with a drawback: The customer does not have a permanent license for the product, and if the subscription ends, so does the right to use the product. But at $144 a year, most customers will find that continuing the subscription is less costly than owning the license. Even when paid over three years, the annual fee is less than the $505 that Office can cost through other volume-licensing programs. Furthermore, that $505 doesn’t include upgrade rights -- another $440 over three years -- while the subscription automatically grants the customer the right to use the latest version of Office.

It really means "all-in" this time

Unlike its competitors, whose low-cost user applications and services both live in the cloud, Microsoft's online business offerings require licensing Office to get any useful work done. Even using the lightweight Office Web Apps in a business environment requires purchase of a full Office license.

The reason is simple: Office generates more than $15 billion a year in revenue for Microsoft. Imitating its competitors' architecture by including Office clients such as Word, Excel, PowerPoint and Outlook as part of a $50 a year service is not an option.

In some respects, the Office subscription represents a halfway solution, but it arguably delivers more than online-only clients. Microsoft's willingness with Office 365 to significantly reduce the cost of Office marks the moment that the lines are cast off and the ship sets sail into the uncertain waters of a full-fledged online services offering -- with one of its most precious cargoes aboard.

ABOUT THE AUTHOR
Paul DeGroot is a writer, trainer, and principal consultant at Pica Communications, which specializes in Microsoft licensing strategies and policies.

This was first published in February 2011

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