This content is part of the Essential Guide: A guide to Microsoft Windows Server 2016

Windows Server 2016 licensing tweak could cause big headaches

Get ready to pay more, experts warn, when Windows Server licensing fees shift from per-processor to per-core starting with Windows Server 2016.

Microsoft's attempts to steer customers toward hybrid-cloud use on its Azure platform as part of a new Windows Server 2016 licensing model may not work as the company expects, according to at least one licensing expert.

That's in addition to what IT pros and attorneys who deal in licensing cases agree is likely to happen: many users will pay more for Windows Server licensing when Microsoft shifts billing from a per-processor basis to per-core later this year. The new billing model will be part of Windows Server 2016 Datacenter and Standard Edition when it enters general availability, which Microsoft says will happen in the third quarter of 2016.

In addition to the per-core billing, Windows Server client access licenses will still be required for every user or device accessing a server, according to the company.

"Somebody at Microsoft is probably rubbing their hands together at the opportunity to increase revenue through non-channel sources," said C. Christopher Barnett, a senior associate attorney at Scott and Scott, LLP in Southlake, Texas, who deals with software licensing cases.

If Windows Server 2016 was sold in a different marketplace, the move could cause users to explore other options. However, given the current landscape of choices in the data center where Windows Server is so familiar to IT pros and holds a commanding market share, the latest licensing change likely won't push users away from the upcoming server operating system, Barnett said.

"Microsoft knows there is elasticity with its Windows Server relationship with customers that allows it to push and push and push without breaking the relationship," he said.

Barnett's forecast for higher costs is based, in part, on his experience when a similar shift occurred with SQL Server 2012, where he saw costs rise after a change to per-core licensing.

In addition to increasing costs for many users, the new billing model also is more complex, according to Barnett. Users will need to make sure they properly count the cores they are using to avoid a larger bill in the future. Each processor will need to be licensed with a minimum of eight cores, and each physical server will need to be licensed with a minimum of 16 cores, according to Microsoft. Licenses for servers with eight cores or less per processor will be same price as the Windows Server 2012 R2 two-processor license price, according to Microsoft.

The list price will increase by about 50% to license the same size servers with the same number of processors and cores. For example, a four-processor server with 12 cores per processor will go from $1,754 with Windows Server 2012 R2 Standard to $2,631 with Windows Server 2016 Standard under the new licensing scenario. Under the same scenario for Windows Server Datacenter, licensing costs would go from $12,236 for 2012 R2 to $18,354 for 2016, according to Paul DeGroot, principal consultant at Pica Communications in Camano Island, Wash.

"This is not good news for companies that run big data centers," Barnett said. "I don't believe it is something that will be warmly received by Microsoft customers once they start getting their hands dirty."

Enterprises are "soft targets" for more revenue, according to Carl Brooks, an analyst with 451 Research in New York. Microsoft's shift toward consumption-based billing aims to put data center and cloud billing on the same page, Brooks said, and recognizes where the company sees its growth opportunity: with providers.

In the past year, Window Server licensing revenue has been up 7% from service providers, while on-premises licensing fees have dropped 2% in the same time, according to Brooks.

For Microsoft customers with software assurance, the new licensing model will not affect them until renewal time, according to Microsoft. But the company acknowledges "there may be an increase in the cost of software assurance relative to the increase in processing power."

Microsoft has argued the new billing model offers greater value, including sessions in Azure, its cloud computing service.

The move to change the licensing of Datacenter and Standard editions from processors to physical cores "aligns licensing of private and public cloud to a consistent currency of cores and simplifies licensing across multi-cloud environments," according to the company's Windows Server 2016 Pricing and Licensing FAQ.

This follows the October 2015 addition of an "Azure benefit" for customers with Windows Server licenses with software assurance, allowing them to upload Windows images to Azure and pay just compute rates.

That reflects Microsoft's intent to move more users to Azure, and convert software assurance customers from a support and maintenance model to a hybrid cloud model, Barnett said.

What's best for end users?

Although Microsoft says this licensing change encourages users to move from their own data center to Azure, the new licensing fee structure makes it more attractive for Datacenter edition users to stay put. For companies that want to use Azure, they should purchase those cloud licenses separately, according to DeGroot.

In the cloud, both editions offer the same right -- two VMs on up to eight cores each or one on up to 16 cores. But on-premises, the Standard edition allows just two VMs while the Datacenter edition allows unlimited VMs, which makes it the best option for most enterprises, according to DeGroot.

In this case, transferring Datacenter edition licenses to the cloud will offer no additional benefit.

"I would optimize on-prem and I would not move those licenses to the cloud," said DeGroot.

The idea behind hybrid cloud is to move workloads between on-premises and the cloud, but DeGroot sees the new Window Server 2016 licensing model encouraging what he calls a "binary" treatment of workloads.

"The whole notion that I will move a workload from on-prem to the cloud is killed by what happens when I move to the cloud," he said.

For many Windows Server customers, the new licensing model introduces a new set of questions and challenges.

"It is difficult for Microsoft to transition users to a new version of Windows Server; there is a lot of Windows Server 2003 out there," and transitioning to a new version will be a major disruption, according to Christian Perry, principal analyst and practice manager at Technology Business Research in Hampton, N.H. "[Add to that] a new pricing model that users might not perceive as beneficial to their bottom line. You are bringing in new issues where there are already unresolved issues."

Hewlett Packard Enterprise's Moonshot is an example of a product that has had some challenges because the licensing is done by core, Perry said.

"If users are [accustomed] to licensing on a per-box basis, they might not be willing to turn on cores. That can impact performance, and then you have virtualization issues -- a whole range of things are impacted across the data center," according to Perry. The move to Windows Server 2016, he predicts, will likely be "a sluggish rollout at best" this year.

Robert Gates covers data centers, data center strategies, server technologies, converged and hyper-converged infrastructure and open source operating systems for SearchDataCenter. Follow him on Twitter @RBGatesTT or email him at [email protected].

Senior executive editor Ed Scannell contributed to this report. Contact him at [email protected].

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