Microsoft to Use Licensing to Drive Enterprise Penetration

Microsoft just announced changes intended to reconcile new technology and old licensing models, effective December 1. Microsoft will now calculate the cost of server software products by the number of running instances of that product on any given server, rather than the number of physical processors contained in that server.
The changes Microsoft announced are purportedly for simplification and customer flexibility. We believe these changes really are aimed at broadening Microsoft’s footprint in enterprise IT. Dropping the requirement that virtual installations of Windows be licensed amounts to a huge price decrease, so what is Microsoft thinking? To us, it looks to be a shrewd move by the folks in Redmond . This is not an ordinary price decrease; it is an attempt to cause disruptive change that benefits Microsoft. Let us explain what Microsoft is up to and the opportunity it presents if you are not Microsoft.
By unlocking some IT dollars, Microsoft is betting that enterprises can redirect these funds toward increasing the share of IT spending going toward new technologies. Traditionally, 70% of IT spending is on maintenance, leaving only 30% of budget dollars for new stuff. Microsoft would like to see the share going to new technology grow to 50%. By effectively reducing the cost of server licensing, Microsoft frees up IT dollars needed to fund the innovation in virtualization that will drive Microsoft deeper and broader into the enterprise. So when everything shakes out, Microsoft expects to trade some server licensing revenue for new revenue that makes them an even more pervasive part of the enterprise IT environment.
This change “allows customers to accelerate their adoption of technical innovation,” states Bob Kelly, general manager of infrastructure server marketing at Microsoft. “What this means is that Windows becomes the platform for virtualization. Customers will consolidate existing systems to Windows using virtual technology. This is very compelling to our customer base.”
So what does this mean for our clients who are not Microsoft? It is not every day that Microsoft frees up a significant amount of IT funds. Yes, they have plans to re-absorb this money, but that is not a given, especially when it requires IT evolution. For companies that feel squeezed by Microsoft’s share of the IT budget, now is a great opportunity to expand your market because the window of opportunity will not last long.