Strategic implications of new MS System Center 2012 licensing

Microsoft has renamed, rebundled, and repriced its licensing for the System Center 2012 products. John Joyner explains the strategy behind the licensing choices.

A few weeks ago, Microsoft took the covers off a radical licensing, packaging, and future direction change for Microsoft server products. Microsoft has taken a bold step to consolidate and expand its business in the direction of cloud and datacenter management. Starting with Systems Management Server (SMS) in 1994, and joined by Operations Manager (MOM) in 2000, Microsoft's System Center family of "servers that manage other computers" has grown to include products for backup, security, virtualization, incident ticketing, and other IT management functions.

It was reported in 2009 that Steve Ballmer spoke of System Center management products exceeding one billion dollars revenue for Microsoft, the first product line since SharePoint to do so. The success of the System Center products in the last decade and a half continues, and in the future increased revenue from private-cloud management software like System Center 2012 can have an offsetting effect for Microsoft. As traditional IT hardware resources migrate to the cloud, and stationary/on-premise computers decline in numbers, software that manages organizations' clouds will have high value.

Messing with success, but easier licensing finally

Microsoft changed the naming scheme for the products, eliminated license fees for the System Center servers themselves, bundled all the product licenses into one license in two editions for servers, and made many other strategic changes to the product lines that sound great. However they took away the ability to purchase the license for just one System Center product-one must purchase a new System Center 2012 license that could cost as much as three times more than before if you only want one piece.

They are messing with a valuable revenue stream. While there is every expectation of success for Microsoft and the industry, there is also a risk that people will be turned off by the higher entry price, or that expected features aren't there or don't work. Microsoft hopes that the value of System Center technology as a whole will convince enough businesses to switch -- from one or more third-party management products -- to an all, or almost-all, System Center management stack in their datacenters. There are also significant changes behind the scenes organizationally, as Microsoft combines the teams from a half dozen formerly separate support and product groups.

On the other hand, the simplified licensing in System Center 2012 is a source of relief after years of licensing chaos. Previously each product had a completely different license scheme, some charged for management servers, others charged only for clients. Some products had tiers where the cost depended on what the monitored server was doing. For some organizations, being spared the research and headache to correctly license the pre-2012 versions of System Center products pretty much compensates for the new license fees.

Compelling math for the datacenter, a harder sell for one product

There are eight System Center products in the suite, and the suite is available in two editions for servers. (There are client computer licenses in System Center, for desktop and mobile computers, however this article covers only the management of computers running server operating systems.) The Standard management license (ML) has a list price of $1,323 that licenses two Operating System Environments (OSEs). The Datacenter ML price is $3,607 for unlimited OSEs per two physical processor sockets. Basically the Standard ML is for the single server (up to two processors) and the Datacenter ML is for virtualization hosts (one Datacenter ML per two processors on the host). The effect of these changes depends on your perspective:

  • Using just one System Center component: The worst picture is that an individual System Center product becomes several times more expensive to license for a single conventional server, if you use only that one piece. For example, if you only use System Center Configuration Manager for updates management on a large number of non-virtualized servers, and no other parts of the System Center 2012 suite are appealing, it will cost you more to use Configuration Manager in the future if you continue to only use that System Center component.
  • Already sold on the Microsoft datacenter: For Microsoft customers already using several System Center products, such as Operations Manager for monitoring, Data Protection Manager (DPM) for backup, and Virtual Machine Manager (VMM) for virtualization hosts, the bundled suite and simplified licensing will likely save money and certainly remove doubt about how to correctly license their server management tools.
  • OK with System Center so far, open to using more components: A market growth opportunity for Microsoft is present in this common scenario. An organization may be using a System Center component, such as Operations Manager, and also not be committed to other providers of management tools. Operations Manager customers with Software Assurance will now be grandfathered into the complete System Center 2012 suite. The opportunity exists to displace separate-cost third-party software, with System Center components the customer will now already own.

Walking through this last scenario, a typical virtualization host in a corporate datacenter might be running eight virtual machines (VMs). If that host has two physical processors, a single $3,607 System Center 2012 Datacenter ML will license all nine computers (including the host) for all System Center technologies. Spread across the nine computers, that license costs about $400 per server. Third-party backup software alone often exceeds that cost per server. Throw in not having to pay for a third-party security/anti-virus solution, patch management software, help desk platform, network monitoring tool, and high-availability virtualization tools...there is a lot you can do with that license:

  • Deploy software and updates with Configuration Manager
  • Monitor and optimize with Operations Manager
  • Backup and disaster recovery with Data Protection Manager
  • Virtualization management with Virtual Machine Manager
  • Security and anti-malware defense with Endpoint Protection
  • Runbook automation across servers and services with Orchestrator
  • Incident ticketing and problem management with Service Manager
  • Provisioning workloads in both private and public clouds with App Controller

It is a compelling software and license stack that could save over $5,000 in this example of one virtualization host, and the denser the virtualization, the higher the value. A quad-processor host with 40 VMs would have a net license cost of $175 per server and a cost recovery potential of over $20,000. Some Microsoft customers that continue to license System Center products will face a choice to either pay more for just what they are doing now--or pay less in total than they are paying now, by moving more of their IT functions to Microsoft System Center.