Many Hosting and CSP partners believe that the transition to Azure will cost them a lot of margin because they are forced to part with the SPLA licenses. In this blog I explain that a transition to Azure certainly does not hurt their profitability, assuming the Azure license policies are properly used.
I will limit myself to the two most used licenses that have the greatest price impact during an Azure migration: Windows Server and SQL.
In order to make the different license models comparable, Microsoft has been billing licenses based on core numbers since 2018. This sounds easier than it is, especially for Windows Server.
The following license models are compared with each other:
- CSP Subscription licensing 1-year commitment
- CSP Subscription licensing 3-year commitment
- The Azure Pay-as-you-go (PAYG) licenses that are included in the VM price (but differentiated here)
All prices mentioned are partner net USD prices, based on the Amsterdam price level.
The hosting partners’ business and profitability is based on creating a volume advantage over the largest possible group of customers. This is especially true for the Windows Server Data Center Edition, although with the introduction of the new Date Center SPLA Windows Sever 2019 licensing conditions, Microsoft has already begun to nibble on this volume advantage. In addition to the licensing of the physical processors per host, Microsoft has also added a license multiplier, the licensing of the OSE: Operating System Environment (read VM).
We see the effect of this reflected in the comparison of the different license models. To make the differences of the models visible, I make three comparisons.
Price comparison per core. Without distinction between physical and virtual cores or taking into account any other condition.
The Data Center license costs are based on an HP ProLiant BL460c with two processors with 20 cores each and 512GB of memory.
In this comparison, the license costs over the 5 license models for an entire VM-series are compared, in this case a Dv4 series. Which means there is no economies of scale for the Data Center edition.
Same comparison as under 2. However, now the license costs of 100 VMs per type are compared based on the applicable license conditions. Now you can clearly see the scale advantage of the Data Center editions.
The conclusions for Windows Server licenses:
It is clear that the use of the PAYG Windows Server licenses makes your quotation unnecessarily expensive. In other words, the use of CSP subscription licenses give room to make extra margin.
The enormous economies of scale of the Data Center editions have diminished significantly with the 2018 condition changes. In fact, the 3-year CSP subscription licensing even offers a significant cost advantage over the SPLA Data Center licenses.
However, the big difference is that the Data Center edition can be shared among many customers. The CSP Subscription licenses are tied to a specific customer, if flexibility is desired, only the extremely expensive PYAG license remains. This binding at customer level is a serious shortcoming in the current CSP license conditions and costs business and / or a lot of Partner margin.
The pricing conditions between the different licensing options are identical. For hosting partners, there are no SQL Data Center editions or other license forms that bring benefits of scale.
The price comparison between the different license options therefore looks like this:
The conclusions for SQL licenses
The differences are a lot smaller here. The price difference between SPLA and PAYG prices is zero. If a customer is willing to commit for 3 years, there is a saving of 17%.
Yet Azure offers an interesting alternative that can significantly reduce the SQL license price and that is the ‘constraint VM ”. The concept of constraint VMs is that relational databases such as SQL, but also Oracle, need a high throughput and a lot of memory and less cores for good performance. This means that in terms of cores too large a VM is chosen and therefore far too many license costs are paid. In some Azure VMs, such as the Edsv4 series the core count can be constrained to one half or one quarter of the original VM size, which means that the price of the SQL license is halved or reduced to only a quarter of the cost .
With the Azure pricing calculator you cannot choose CSP subscription licensing or see the effect of a constrain VM on the SQL license costs.
That is why we have built the Smart Azure Calculator with which you can easily calculate all these effects and you can play with your margin and see where your optimum lies.
Give it a try or contact us to see it work.