Microsoft's Enrollment for Application Platform Program May Lower License Costs

IT procurement professionals continue to struggle to negotiate effective contracts with incumbent suppliers where there is high dependency and lock-in. They are also looking to simplify their licensing arrangements and align contracts more closely with corporate IT goals.¹ By licensing servers in a more standardized manner, they may be able to achieve that goal.

Available since 1 October 2009, the EAP is an add-on enrollment to a new or existing EA. However, although it is an add-on enrollment under an EA, you are not required to license anything else in your EA beyond the EAP. This means that you can have an EA with only the products licensed under the EAP. Historically, the only way to license server products in an EA was to license one or more of the three Enterprise Products: desktop operating system, Office application suite and a Client Access License (CAL) Suite (see Note 1 for a definition).

Products enrolled in EAP require an enterprisewide commitment. This means that if you have 100 SQL servers deployed across your organization, all 100 must be enrolled in EAP (see Note 3) and any new ones you add must be included at True-Up. In addition, since EAP is an add-on to an EA, SA is mandatory.

For companies that license without SA, this could have inhibited EAP adoption, because to bring them into EAP at License and Software Assurance (L&SA) prices could be expensive. However, to accommodate these customers, products not covered by SA are brought into the EAP at the cost of SA alone. The license cost is deferred for as long as the customer stays in the EAP. Since the customer pays only for SA, any non-current licenses brought into the EAP are temporary (non-perpetual). At the end of the three-year term, the customer can continue to defer the license cost by continuing to pay for SA in the EAP, or purchase current perpetual licenses for a predefined cost. If customers choose not to continue with the EAP or buy perpetual licenses for those non-current licenses, they can uninstall the current version (if they had migrated to it) and revert to the perpetual license available when they started the program.

Any licenses with active SA are also brought into the EAP at the cost of SA alone, but since those licenses are current, they would remain perpetual. Any new licenses purchased during the term of the agreement are licensed with L&SA, so they too would be perpetual. New licenses are discounted at 15% for the Standard offering and 40% for the Premium offering.

In addition, large customers with an active Premier Support Agreement and minimum aggregate SA expenditure of $250,000 a year across Microsoft SQL Server, Microsoft SharePoint Server or Microsoft BizTalk Server products within the EAP are entitled to Unlimited Premier Reactive Support incidents. However, these incidents can only be used for Problem Resolution Support. Any time spent by Technical Account Managers and Designated Support Engineers will not qualify and will still be accounted for under the customer's Premier Support Agreement.

The one-year option works in the same as it does in a traditional EA. It is a mechanism used to report any licenses added during the prior 12 months. For example, if you signed an EAP with a one-year True-Up option on 1 January with 20 SQL licenses and added two more SQL servers, you would be required to report those two additional licenses within 15 days of your agreement's anniversary.

Since there is no requirement to forecast growth in the one-year true-up option, all growth is handled under the True-Up option, which can make costs unpredictable. However, the way the True-Up is handled is similar to what would be required in an EA. Therefore, from a budgeting perspective, there will be no change for customers.

Another requirement is that 35% of the growth mix of products granted at the end of the three years must be from the Premium offering. Purchase requirements are outlined in Table 2 above. Under each offering, you are allowed to add an unlimited amount of servers, processors or CALs during the term of the agreement. Costs are fixed during the three-year term, so adding payment predictability. The structure of the EAP with Three-Year True-Up begins with a baseline of the server products or developer tools to be included. Then, for each of the next three years, a growth forecast is built into the Customer Price Sheet, and additional quantities for covered servers and developer tools are included. Thus, there is no True-Up in the EAP until the end of the third year, when you establish a new baseline if you choose to remain with EAP.

While the three-year True-Up may look attractive, remember that it is a growth model, and in an EAP, programmatically there is no "true-down." So, if you forecast a 20% growth rate, and you only grow servers by 4% or not at all, unless negotiated otherwise, you would still be contractually obligated to pay for those growth servers. Before embarking on this option, ensure you have a robust demand management capability, and that even your most conservative demand estimates meet or exceed the growth.

Another area of concern is the risk of unbridled growth. Since there is no True-Up until year three, companies with poor asset management controls and poor demand/capacity management processes could find themselves in a difficult situation when they review their True-Up situation and discover they have installed far more than they had budgeted for.

In addition, some customers we have spoken to indicate that they are using the three-year True-Up option to fix an out-of-compliance situation. The growth they are building into the EAP represents their license shortfall. For example, several clients have reported that their Microsoft representative advised them just to "pick" a baseline number, and they then "agreed to" the number of servers that would be installed at the end of three years. The difference between the baseline and the "agreed to" number would be considered the growth servers. However, unless you have a very specific license amendment, in writing and signed by a Microsoft employee, that allows the EAP to be used as a vehicle to "get compliant," you will continue to be out of compliance and be putting your organization at risk.

Recommendation: Create "what if?" scenarios to model the cost of the program if more, or less, growth happens during the term of the agreement. When using EAP as a vehicle to become compliant, unless you sign an EAP as part of an audit settlement or software asset management engagement, it is a dangerous approach to take.

The Application Platform Agreement (APA) is the predecessor of the EAP and only available on an exception basis. Like the EAP, the APA is an add-on enrollment to an EA. Unlike the EAP, an APA can be added to an Enterprise Subscription Agreement (ESA). The APA is designed to provide customers committed to certain Microsoft products with unlimited access to those products with a fixed annual payment over three years. There are two major differences between the APA and the three-year True-Up option. First, in the APA, all licenses are non-perpetual. Second, the annual growth rate is negotiable, not fixed at 20% or 30%. The APA has proved attractive for organizations looking to move from a SQL Server/CAL license model to licensing SQL on a per-processor basis (see Note 4).

The structure of the APA begins with a baseline of server products to be included. Then, for each of the next three years, a forecast of growth is built into the Customer Price Sheet, and additional quantities for covered servers are included. Thus, there is no True-Up in the APA until the end of the third year, when you would establish a new baseline if you chose to remain in the APA. Since you would only be paying the cost of SA for new servers added, the growth server licenses would be non-perpetual. Thus, if you decided not to renew the APA, you would have to exercise the buy-out provision to obtain perpetual licenses for anything added during the three-year term. For any server licenses that you had at the inception of the APA, you could uninstall the current version and revert to what you had at the program's inception.

Recommendation: Since this is a negotiated option, there is no guarantee that Microsoft will offer it. (However, we believe that customers with existing APAs will be allowed to renew them.) Therefore, if this is something you might be interested in, approach Microsoft first to see if it is possible. Then weigh the costs and benefits of the program over six years, including the cost to exit the program.

To determine whether the EAP is right for you, it is important to assess the cost implications of each option. To help clarify EAP costs, the following are examples of two of the most common scenarios. In both scenarios, for simplicity, we will assume that SQL Server Enterprise Edition, 1 Processor licenses are being used. Level D, direct EA pricing in U.S. dollars is used as it is available from various public sources. Your license program and pricing level will determine the actual price you pay.

In the first scenario (see Table 3) we assume the organization has 10 SQL Server Enterprise Edition, 1 Processor Licenses enterprisewide, with active SA being licensed through an EA. We also assume two new licenses are added at sign-up and two more at the end of each year on True-Up.

In the second scenario (see Table 4) we make the same assumptions on quantity, only here we assume the organization currently has five additional SQL Server Enterprise Edition, 1 Processor Licenses which do not have active SA and are not current (for example, SQL Server 2005). Because the EAP is an enterprisewide commitment, to participate, the organization would be required to bring those five licenses into the EAP. According to the program's rules, they are brought into the EAP at the cost of SA alone, with the license cost deferred.

In this second scenario, EAP costs about 3% more because of the mandatory enterprisewide commitment. At the end of the agreement, the organization would still own the license rights to 18 SQL Server Enterprise Edition, 1 Processor Licenses. However, it would also have the rights to five non-perpetual licenses and could choose to continue to pay SA to keep them current. Alternatively, it could choose to uninstall the software or exercise its buy-out option and purchase perpetual licenses for those five licenses.

© 2011 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. This publication may not be reproduced or distributed in any form without Gartner's prior written permission. The information contained in this publication has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the opinions of Gartner's research organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner's Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see "Guiding Principles on Independence and Objectivity" on its website, http://www.gartner.com/technology/about/ombudsman/omb_guide2.jsp.