Google veep calls out Microsoft's cloud software licensing 'tax'

Watchdogs are 'starting to understand the situation,' exec tells El Reg

Google is very publicly adding to the chorus of complaints about Microsoft's alleged restrictive cloud software licensing policies, claiming that unless the European Union formally tackles it, the industry and customers will suffer lasting damage.

Amit Zavery, vice president, general manager, and head of platform at Google Cloud, says antitrust regulators are "starting to understand the situation" and are asking questions.

"Any enterprise company will be impacted negatively if things are not resolved properly," he told The Register. "I think there should be appetite [from the regulators] and I think there should be movement in that area to really put some kind of checks and balances on Microsoft's policies."

Speaking out ... Google Cloud's Amit Zavery

One bone of contention for Google, the third-largest public cloud provider globally and in Europe, is that it simply costs more to run Microsoft software on third-party providers' clouds. This is due to extra licensing costs levied by Microsoft when you run its applications on non-Microsoft clouds, we're told.

"Microsoft publicly touts that if you run their software on Azure versus other vendors like AWS and GCP, it's five times cheaper or it's more expensive to run on us, basically because of the tax customers have to pay to Microsoft," Zavery told us.

"The price of the products are the same in terms of infrastructure and everything else, so the licensing cost is more expensive because of using providers other than Azure," he added.

"On premises, they could run it on any hardware, there was no restriction really. But now if you want to run it on any other cloud provider, you have to pay a tax and penalty to Microsoft if it's not running on Azure, or in the preferred providers of their choice.

If you want to run it on any other cloud provider, you have to pay a tax and penalty to Microsoft ... That is a big issue because all enterprises have a large footprint of Microsoft products like Office and Windows, SQL Server and others

"So that, I think, is a big issue because, of course, all enterprises have a large footprint of Microsoft products like Office and Windows, SQL Server and others as well, and if you don't allow that for products which have been paid for already by customers to be run anywhere, without paying a penalty to Microsoft, you're just getting getting beholden to Microsoft.

"That's the big, big problem for many enterprises today where they can't bring their licenses wherever they choose to. There is nothing technically preventing that from happening either. It's running on standard compute, which of course Microsoft allows for some cloud providers to use and run their products on, but not AWS, or GCP."

Office space

Microsoft is the only one of the big three cloud providers that has a huge installed base of customers that have been using its wares and services for decades before the cloud showed up. Microsoft's meteoric growth recorded with Azure was due to its "policies," the Google exec said.

"It shows you how much pull they have, that is the cost to customers, because they don't have a choice," he told The Reg.

Investigation

We spent some time in recent weeks collecting the thoughts of various sources across the industry on Microsoft's tactics, and many wanted to remain anonymous for fear of upsetting the IT giant. Some feared soft tactics being wielded against them by the Windows maker, such as discounts evaporating or the compliance team calling, if they spoke out.

The extent of Microsoft's ruthlessness to keep its base of legacy software customers locked within its empire – either on-prem or in Azure, or both – became all the more obvious following licensing agreement changes introduced in 2019, said one source, who also drew attention to Microsoft's marketing claims of Azure being five times cheaper to run SQL Server than, say, on a rival's racks.

"At least with SQL Server, customers have that choice, maybe it's a cost issue, but with SQL Server they have a choice. With other applications like Windows Server, Microsoft outright prohibited it back in 2019.

"Very rarely are customers going to break up their license portfolios because of this patchwork of rules."

Microsoft's customers could run its wares on any cloud, but if they wanted to run it on shared infrastructure they needed to buy something called License Mobility that came via a Software Assurance license. Those with dedicated infrastructure did not. That changed in 2019.

"That was a double whammy for a lot of customers," our source claimed. "Dedicated infrastructure already costs more because you're having to buy out the entire server, whereas shared infrastructure, you only pay for what you need when you need it."

Added to this, Microsoft also created a targeted list of providers that the changes applied to, added a source.

"Microsoft basically targeted its three largest competitors. Listed providers in 2019 were designated as Google, AWS, Alibaba. Then Microsoft in a thinly veiled attempt to proclaim that this change was non-discriminatory, included itself in that list of listed providers."

Customers with perpetual Microsoft licenses could no longer bring their applications to their cloud provider of choice – assuming they wanted to use AWS, GCP, or Alibaba. Instead, Microsoft created the exclusive Azure Hybrid Benefits program, meaning that while customers "technically" couldn't bring those licenses to Azure, they could exchange them for SaaS-based licenses for Azure.

"This was too cute by half with Microsoft now saying, 'Look, we're technically complying with the letter of this prohibition by not allowing these perpetual licenses to be brought to Azure.' But in reality, they were totally undermining the spirit of it by letting customers exchange those licenses for SaaS subscription of those applications."

This meant customers had to fork out to buy fresh licenses if they didn't want to run on Azure or tie themselves into a Microsoft subscription.

"Customers who have made considerable expenditures both from a capital, time, and IT resource perspective on these licenses want to deploy these licenses in the cloud, and Microsoft was saying, 'If you want to use these main competitors of ours, you no longer can, even though previously we had allowed it. If you want to use Microsoft's products on these platforms, you either need to pay some for Software Assurance, or rebuy."

Don't forget Amazon

AWS, via its membership of the Cloud Infrastructure Service Provider of Europe (CISPE) trade association, is also taking its gripes about Microsoft to the EU. CISPE filed a complaint in November, and this week rejected Microsoft's effort to settle the case, describing the offer as "pretty paltry" and saying it has an unspecified "minimum requirement" before it agrees to gather round the negotiating table.

Microsoft settled in March a joint complaint brought by OVHcloud, Aruba S.p.a., and the Danish Cloud Community. The contents of that settlement are confidential and CISPE told us at the time they were "bilateral and secret" and it expected "something to be offered to everyone across the market."

Redmond-based Microsoft is also making conciliatory noises in other complaints raised, such as the one by Slack over the bundling of products.

Specifically, Slack wasn't happy that Microsoft's rival chat app Teams is included in the market-dominant Office suite. Microsoft is, as a result, offering to charge different prices for Office 365 with or without Teams or to potentially pull the bundle entirely.

The Office E4 license, as an example of Microsoft's bundling of applications, contains around 30 products ranging from automation, security, and storage tools to analytics offerings and more, said Google's Zavery.

Bundling "creates damage to the other vendors… in that space [who] probably have technically better products in some cases as well, and they are not able to compete," he told us.

It may well be that a security vendor or identity and access management provider decides to file similar complaints to Slack and Nextcloud, which complained to the EU about Microsoft bundling OneDrive with Office 365.

We have asked Microsoft to put forward an executive to interview. ®

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