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User-based Cloud Licensing – problematic for some Industries

By Paul DeGroot, Pica Communications

The cloud is not for everyone, but it may not be clear when it’s a good choice and when it’s not.

In our practice, we find many customers making suboptimal choices on the Microsoft platform. Those choices increase costs substantially and create serious operational problems that could plague these organizations for years to come.

One issue that causes consistent problems is the shift to user-only licensing.

Shared Computers

Until this century, Microsoft licensed most products by device. The number of licenses required could be determined by counting the number of devices that ran the product or that accessed a Microsoft server, in the case of client access licenses (CALs).

Device licensing is still available for on-premises products and any use of a device licensed that way is covered by licenses assigned to the device. For example, a single PC with device licenses could be used by 30 different staff each day to look at their Exchange email (at 30 different email addresses), view the company intranet on SharePoint, use Word to request a day off, and access a database that listed their employee benefits.

The total number of licenses for all this activity? Six. One Windows desktop license, one Office license, and one each of CAls for Windows Server, Exchange, SharePoint and SQL Server. All licenses are assigned to the shared device.

As users began to acquire more devices, like Blackberry smart phones that could send and receive email via Exchange, assigning licenses such as Exchange CALs to the users made more sense than licensing all their devices. Rather than buy two device licenses, for a user’s PC and phone, the organization could purchase a single user license that permitted access to email from any device.

Mixing Devices and Users

Smart organizations often mix device and user licenses.

Retail organizations license headquarters staff, who might have multiple PCs, phones and tablets, with user licenses. Store devices that are shared by many users are licensed per device.

Hospitals assign user licenses to managers with dedicated mobile devices, but assign device licenses to shared PCs in laboratories, nursing floors, kitchens and other areas. Manufacturers and oil or mining companies make similar distinctions between “knowledge workers” with multiple devices and factories or processing facilities where most devices are shared.

The Cloud Problem

Office 365 and other user-oriented Microsoft cloud services, in contrast, are licensed by “user subscription licenses,” or USLs. Microsoft’s Enterprise Agreements often require customers to purchase USLs for everyone in their organization who uses a computer.

For some industries, this can be a showstopper.

In retail organizations, 90% of the workforce may never touch anything but a point-of-sale terminal or a bar-code scanner, and several hundred employees may share 50 such devices in a store. Licensing the users may quadruple costs. Making matters worse, most of these staff are part time. The employee who covers two weekends a month will cost as much to license as a full-time employee.

Operational issues can be even more complex, and in some cases may force the organization to abandon much of its Office 365 investment in order to continue to function normally.

Operating in the Dark

This mismatch of licensing to organizational requirements is particularly obvious in healthcare.

Take a hospital nursing floor. Shared PCs will be located in patient rooms, supervisor’s offices, a central work area where staff use a few PCs to enter data on charts, requisition tests and medication, and so on. Each PC will be used by nursing staff on multiple shifts, therapists, nutritionists, doctors, laboratory technicians, orderlies and others who may visit several wards over the course of a day.

Most of the PCs use generic passwords. providing sufficient confidentiality for patient records while minimizing authentication hurdles for staff who constantly switch among PCs.

Office 365 enterprise licenses, such as the popular E3 bundle (Office, OneDrive and CALs for Exchange, SharePoint, and Skype) are problematic in this environment, for several reasons:

  • The user who installs Office on a PC (via Office 365 click-to-run) is the only person licensed to use it
  • Users must log on to each device with a unique user ID and log off when they are finished using that device
  • Each user is limited to using their Office subscription on five PCs

These rules create huge operational issues for hospitals, factories, and other industries that rely on shared PCs. Staff may be prohibited from logging on to some PCs (on the grounds that they have exceeded their five-PC limit), and would be restricted to using specific PCs. Office is installed on PCs by users, not provisioned by IT.

Shared Computer Activation

Microsoft has a solution of sorts, an approach called “shared computer activation” (SCA) on Office 365. Patched together in mid-2014, it does not require users to log on to to use Office, although they will need to log on individually to get e-mail.

Furthermore, SCA may still balk when a single user accesses Office from more than a certain, unspecified, number of PCs. Having staff twiddle their thumbs while the help desk works with Microsoft to sort out this licensing violation is an unwelcome prospect.

SCA relies heavily on Office running in Windows Remote Desktop Services (RDS, formerly Terminal Services). The RDS solution is ubiquitous in many shared-device environments. It is also far less costly than Office 365. As long as customers need to deploy an RDS architecture to maintain shared PCs, they’re better off buying RDS (or maintaining it, since RDS may be their existing solution), rather than paying for Office 365 and then ending up with RDS as well.

In their eagerness to sign organizations up to Office 365, Microsoft account teams rarely mention such drawbacks and, in our experience, forget to provision RDS licensing. After discovering that Office 365 may be unworkable, the customer must not only write off their Office 365 investment (to which they may be committed for the next three years), but send Microsoft even more money to license a workable solution.

Long-Term Implications

Abandoning their Office 365 investment may be only the first of their problems, since in migrating to Office 365, most organizations will stop paying for upgrades on their device licenses.

One of our customers, an early (2011) licensee of Office 365 for about 20,000 users, never found a strong user case for it and after wasting $12 million, was considering dropping it. However, the customer was now limited to using Office 2010, the last version of Office it was licensed for before it signed up for Office 365, which offers no on-premises upgrade rights. Without further upgrade rights for Office later than the 2010 version, the customer’s primary upgrade path to a later version of Office is a $6.5 million purchase of new Office licenses.

The total expenditure, including Office 365, is $18.5 million. In contrast, skipping Office 365 and renewing upgrade rights on Office would have cost just over $5 million.

Cloud Migration Advice

Shifting to cloud subscriptions may still be a good choice for organizations that have few shared devices and many users with multiple devices, but it does not offer the same flexibility as mixing user and device licenses for perpetual, on-premises software when organizations have many shared devices.

Customers with a significant number of shared PCs are advised to analyze their numbers carefully. Conventional Office device licenses for all PCs, with user CALs for Exchange, SharePoint and Skype for multiple-device users, while device CALs are assigned to shared devices, will be the most cost effective solution for many organizations.

This article was contributed by Paul DeGroot of Pica Communications. If you would like to hear more from Paul then come along to the Pica Communications Microsoft Negotiations and Licensing Workshop on the 19th, 20th & 21st October.

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About Paul DeGroot

Paul DeGroot is one of the world’s leading experts on Microsoft licensing principles, policies, and strategies. He led the licensing practice at Directions on Microsoft, and subsequently formed Pica Communications, LLC to deliver exceptional insight into Microsoft licensing for audiences and organizations worldwide. In his role as Senior Consultant at Software Licensing Advisors, he has led customers to more than $250 million in negotiated savings over the last three years.

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