Microsoft: Azure enterprise licenses will be simple

However, analysts said there could be complexities for long-term contract holders with the move to a cloud pricing model

Microsoft has not made clear how it will incorporate Windows Azure pricing into the long-term contracts it signs with its enterprise customers, but a company executive said this week Microsoft intends to make it as simple as possible for them to take advantage of the new cloud-computing service.

At its Worldwide Partner Conference this week, Microsoft said Azure would be available commercially in November and unveiled the pricing for the cloud-based application-development and deployment platform.

The company also said it would be included as part of the volume licensing contracts through which many large customers pay for Microsoft products, though it did not clarify how these contracts would incorporate both a pay-as-you-go model and licenses calculated on a per-CPU basis.

Doug Hauger, a Microsoft general manager, said that Microsoft would have much more detail on the specific integration of Azure pricing into enterprise contracts in November. But he said Microsoft would keep Azure separate from its traditional software licensing so as not to confuse customers.

"We'll make sure it's integrated into enterprise agreements and not complicated," Hauger said. "It will be just another page in the agreement. We want simplicity in how we license and [provide] access."

Despite these good intentions, Microsoft has already run into some complexities as it tries to integrate new pricing models for its more Web-oriented offerings into traditional enterprise contracts and the licenses they require for users.

In particular, pricing for its hosted Business Productivity Online Suite (BPOS) -- which includes hosted versions of Exchange, SharePoint, LiveMeeting and Office Communications -- is causing customers some concern, said Paul DeGroot, an analyst with research firm Directions on Microsoft.

If a customer purchases a BPOS subscription for employees who will access only those services, the customer must still purchase CALs for those users, DeGroot said, even though they are not accessing the on-premise software as well. Microsoft gives customers a discount on other parts of their license in such scenarios -- on the Software Assurance (SA) maintenance program required for enterprise agreements, for example -- but they still end up paying for something they are not using, DeGroot said.

Depending on how it wants to give companies access to Azure beyond the pay-as-you-go pricing model, the company could run into the same trouble with its cloud-computing platform, he said. "With Azure it could get even more complicated," DeGroot said, though it remains to be seen until Microsoft unveils specific terms of Azure's integration into enterprise contracts.

To mitigate any complexities, Hauger said Microsoft is, on request, giving customers options for how they can license Azure, pricing that is separate from software they already pay for.

In addition to an option to pay only for what users consume, Microsoft also will offer what it's calling a development accelerator that will allow people to pay a one-time fixed price for six months of access to Windows Azure as a more predictable pricing option, he said.

"We consider what it would take to run that application full time for six months and discount that 45 percent," Hauger said of how Microsoft is pricing Azure in the accelerator program. "It's a set amount."

What Microsoft is going for as it adds more pricing options beyond per-CPU pricing is a more continuous revenue stream, said Directions on Microsoft founder and CEO Rob Horowitz on a conference call with financial analysts this week.

"They're trying to go back to the old mainframe model where customers have to pay you something every year," he said. "It's like 'Hotel California,'" Horowitz continued, referencing a song by American rockers The Eagles with the lyrics, "You can check out any time you like, but you can never leave."

He added that there likely will be some "transition issues" as Microsoft moves enterprise customers to these new pricing models.

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Elizabeth Montalbano

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