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Will Windows Server 2016 licensing change drive Azure adoption?

With the looming increase to Windows Server pricing coupled with lower Azure costs, Microsoft continues to steer customers to the cloud. Here's how the costs compare.

When you combine the announced price increase of Windows Server licenses with the monumental push Microsoft is making to get customers to sign up for its Azure public cloud service, it is easy to conclude Microsoft is using license costs to drive customers to the cloud and away from on-premises software. Let us dive into this a little bit more and tease out some numbers.

Price of existing on-premises Windows Server licenses will increase

The cost of Windows Server operating system (OS) licenses with Windows Server 2016 is jumping to $6,155 for the Datacenter edition and $882 for the Standard edition. You still need client access licenses (CALs). But the big difference is that Windows Server 2016 licensing has moved away from a single license for every two processors regardless of core counts with no minimums to per core licensing. Other server products, including SQL Server, have been licensed this way for a while, and Azure services are generally priced on a per-core basis, so this move was not hard to see coming. There are some rather draconian implications of this move. To name a few:

  • The bottom line: if you have more than eight cores per processor, your price will go up.
    Getting an inventory of core count per processor can be difficult. Most software and automated system discovery tools report the number of processors, but discovering an accurate core count can be quite daunting, especially with virtualization and various hypervisors. Unless you physically audit each discrete piece of hardware, and then carefully track the configurations of all new hardware you buy that will run Windows Server and other software that is licensed on a per-core basis, you would do well to assume your inventory count is low.
  • Overbuying and underbuying can be a problem. If you do not have an accurate count, you will tend to overbuy licenses. When the licenses themselves become more expensive, that makes overpurchases that much more wasteful. Indeed, even for single processor machines, you must purchase at least two processor licenses for eight cores a piece, so you're licensing for 16 cores even if you only have eight or even four. Plus you are not getting any additional value from overpurchasing, or for that matter, from the price increase itself; this is clearly a move to extract more money from customers one way or the other.

The bottom line: If you have more than eight cores per processor, your price will go up. And that applies even if you want to stick with Windows Server 2012, Windows Server 2012 R2 -- or go even more downlevel. After the Windows Server 2016 general availability event, this pricing change will be in effect for all versions of Windows Server.

Microsoft presents a simpler pricing arrangement for Azure

Contrast that on-premises licensing news with Azure pricing. There is a charge per hour for virtual machines (VMs), storage and other services. You pay for what you use and when you're not using it, you can turn it off and stop being charged. It is a lot simpler and cleaner than buying a perpetual license for an OS and there is no such thing as an overpurchase or worrying about inventory or core counts. You pay for what you have enabled and signed up for, and you do not really stock up on VMs or storage while they are cheap or because you don't yet know what you want to run. If you have a workload that needs an Azure resource, you initialize and deploy it and are charged commensurately for it. There are also no CALs required, even if clients connect to Azure VMs. In the cloud, everything else is a client, and so the CAL client requirement is waived.

One of the side benefits of Azure is that generally the price of the Windows Server license is included in the overall bundled price of the services.

In that sense, Azure licensing is worlds better than trying to muddle through CALs, core counts, Software Assurance and enterprise agreements. Microsoft wants you to use this model because it ends up earning more. Microsoft realizes revenue right away. It gains more customers -- albeit they are generally paying less -- but there are more of them. Microsoft can adjust prices in response to competitive situations, resource availability and other factors more easily than it can adjust multiyear contracts.

One of the side benefits of Azure is that generally the price of the Windows Server license is included in the overall bundled price of the services. For example, if you load a D1 Windows Server-based VM, then you simply pay a set price per hour and a portion of that price is for the compute resources, while a smaller portion is actually compensating for the right to run Windows Server. With the new "license mobility" benefit of Software Assurance, you can now move up your Windows Server-based VM and run it in Azure paying only the compute portion of the per hour charge, as Microsoft waives the licensing cost since you are deploying a license you already own exclusively to the use of that Azure VM.

Breaking down the Windows Server licensing changes

Here's a pricing summary:

  • Current Datacenter edition Windows Server perpetual license: $4,599 for two CPUs;
  • After Windows Server 2016 GA, Datacenter Windows Server perpetual license: $6,155 for two processors at eight cores; and
  • Datacenter Windows Server Azure license: $93.74 per month.*

*This price is based on a D2 VM -- with two cores and 7 GB of RAM -- minus the cost of a Windows Server D2 instance from a Linux D2 instance to separate the cost of the license from the cost of the compute resources.

From the price breakdown, you can run an Azure VM for more than 65 months before you would have been better off buying a Windows Server license in the upcoming licensing change. Obviously this is not a perfect comparison given the various configurations of Azure VMs available, but most customers buy Datacenter edition licenses to get unlimited virtualization rights, and most VMs will not require the highest performance.

So it's an interesting comparison -- and a fairly simple one -- to see that Azure can be cheaper in a lot of ways than continuing to run on premises.

Next Steps

Microsoft reduces Azure cloud prices

How to choose the right number of Windows Server licenses

Why IT shops may choose Azure over on-premises Windows Server

This was last published in April 2016

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How will the changes to Windows Server licensing influence your organization's decision to remain on premises or shift to the cloud?
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Better to shift to cloud, if Security, latency and cost are taken care...
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Very interesting! But what about the dataTransfer cost? it was not taken in account, in the comparaison 
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