Microsoft has announced significant upcoming updates to their Cloud and licensing terms and conditions via a blog post by Brad Smith, President and Vice-Chair.

Although the blog post is addressed to European Cloud Providers, Microsoft later confirmed that the most significant changes to licensing will be worldwide, so I would not dismiss the news if I were living outside Europe.

The changes will affect everyone: Cloud providers and their clients.

In this article, we will not discuss why it is happening. Microsoft has compelling reasons. Instead, we’ll concentrate on the outcomes: what is good, what is terrible, what is to be expected, and what you should start doing today to prepare for the upcoming changes.

Of course, the original blog post is unclear on many essential details. Until we see the updated Product Terms and the amended Microsoft Partner Agreement, we will have to infer from the, effectively, declaration of intent and make our assumptions.

What is changing in Microsoft licensing for end clients?

Windows 11 and Office 365 updates

You may already host your Windows 11 virtual machines and Office 365 applications with some Cloud providers. However, you must check if a provider has QMTH authorisation. If they are not on the QMTH provider list, they are forbidden to host these applications for you.

How it works now:
Make sure that the Cloud provider has QMTH authorisation.

Procure Windows 11, M365 or Office 365 licenses. IMPORTANT: pay attention if the licenses you are buying are permitted to be deployed on Cloud providers. Not every license or product has the necessary permissions.

Your Cloud provider, upon your request, deploys it for you, or you install the applications on your own. For 100% compliance, you should notify your provider of every installation you perform yourselves.

What is expected to change?
More European Cloud providers may be authorised to host Windows 11 and Office 365 applications. It is not clear if all providers in Europe will be granted these rights. It is also unclear whether Microsoft will waive the QMTH requirement in Europe or worldwide.

Instead of buying licences first, you will be able to procure a bundled Hosted Desktop solution directly from Cloud providers. It is unclear how this will be billed and whether you will effectively be sold the same licenses, albeit indirectly.

Clients of Cloud providers outside of Europe might have to stick to the current rules. That is to be seen.

Office Professional Plus and Office Standard updates

If you wish to install these “traditional” Microsoft Office packages in a Public Cloud environment, you may not reuse the licences that you already bought. That is expected to change.

How it works now:
Your Cloud provider bills you for Office applications per authorised user on a monthly pay-as-you-go basis.

The announced change:
Instead of paying per month, you will be able to bring your existing licences for Office Professional Plus and Office Standard if they have active Software Assurance.

It is not yet clear how compliance will be verified and enforced. Licensing experts have expressed reasonable doubts about the manageability of such scenarios.

Windows Server Standard and Windows Server Datacenter updates

The announced update to Windows Server licensing is one of the most significant changes in Microsoft Licensing in years. Windows Server has never had the “Bring-Your-Own-License” rights in the Cloud, except for Azure.

Many end clients and Cloud providers complained that Azure has an unfair, anti-trust and anti-competition advantage.
What is changing for Windows Server?

Microsoft has announced that clients will be able to take their Windows Server licences with active Software Assurance to European Cloud providers’ multi-tenant (public Cloud) environments using the same rules as for Azure.

For many, it may be a game-changer. When the changes are implemented, you will not be restricted to Azure if you need to reduce the cost of your Cloud migration.

How it works now:
Windows Server in Public Cloud is a pay-as-you-go (OPEX) cost, including compute, storage, and licences. That is your only option.

How it will work after the changes are implemented:
You will have a choice:

Continue with pay-as-you-go as you do now,

Reuse your Windows Server licenses with Software Assurance and only pay for computing resources.

The big question is whether it will provide the same savings as Azure. That will be dependent on the particular provider’s pricing policy.