In-Depth

How Microsoft Licensing Is Throttling Desktop as a Service

• March 10, 2014

• Read the follow-up: Microsoft DaaS: What's the Holdup?

Despite their enormous productivity benefits, desktops have been a thorn in the side of every organization since the first one was set in front of an employee. It's the most intimate piece of technology in a business environment. Users interact with their desktops for hours each day. Desktops become sluggish, bogged down and possibly infected with the malware flavor of the week.

So what if desktops could be as quick and efficient as the day they came out of the box, centrally accessible from anywhere, anytime over the Internet and as fast as server hardware? This notion ushered in the era of taking physical desktops and turning them into virtual systems, starting many years ago. It was a model that followed server virtualization, and it was supposed to be an obvious next step in the evolution of technology. That model is called virtual desktop infrastructure (VDI).

VDI over the past few years has been expensive and complex. It was a solution that only made sense in large-scale enterprise deployments with thousands of users. The push to put VDI into the cloud has been driven by one of the core principles of the cloud: the creation of a recurring revenue service delivery model. In order to make that happen VDI has to be at a price point the market can bear, and it has to be scalable. It also has to have a catchy "as a Service" name. That name is Desktop as a Service (DaaS).

DaaS is a perfect marriage between VDI and the cloud. It's the holy grail of taking a customer 100 percent cloud. The interest for DaaS in the small to midsize business (SMB) market has been high for years, but the cost of entry and the complexities that go along with DaaS have put it beyond reach for most SMBs until now. The market has matured and there are more products that cater to the SMB community to make DaaS appealing. Now that cost of entry is less of an issue, why is DaaS still not widely adopted by SMBs? Two words: Microsoft licensing.

Microsoft licensing in general for VDI was never meant for the SMB or DaaS. VDI was at one time an enterprise solution deployed solely on an enterprise's own dedicated hardware and used to spin up virtual desktops for their own end users. The market has evolved and the SMB wants in on the ability to use DaaS, but Microsoft licensing has stayed true to the enterprise-only model.

There's been much speculation about why Microsoft licensing for VDI is geared toward the enterprise and discourages SMB scenarios. Microsoft is largely mum on the question, but I believe Microsoft is positioning itself to break into VDI via a DaaS model through its secretive project code-named "Mohoro." This offering is rumored to be coming to market in the second half of 2014 as a DaaS offering to augment the Windows Azure cloud. Microsoft was able to get a big chunk of the hosted Exchange market with its own offerings, so why not try to repeat the model with VDI/DaaS?

Major client device manufacturers such as Dell Inc., Hewlett-Packard Co. and Lenovo aren't huge proponents of VDI because it hurts their OEM licensing with desktops.

So, are Microsoft policies that limit DaaS a failure to update the company's licensing at the same rate that the desktop market is evolving? Or should we credit Microsoft with shrewdly holding out to maximize current revenue streams until it can loosen up licensing in conjunction with its own DaaS release as soon as this year? The latter play makes sense given many of the market pressures on the company.

DaaS and the Microsoft Licensing Roadblock
Sid Herron, director of channel sales at cloud services provider (CSP) VirtualQube, identifies two major obstacles to DaaS. "Now think about cloud services providers trying to make a living with DaaS. Since Microsoft doesn't list Windows 8 or any of its predecessors on the Service Provider License Agreement [SPLA], the only way a service provider can provide a true Windows Desktop instance from the cloud is to first have the customer purchase all the necessary Windows OS licensing, including [Virtual Desktop Access] licenses if the client devices aren't PCs covered by [Software Assurance], and provide those licenses to the service provider," Herron says.

The headaches continue on the services provider's end. "Second, the service provider must dedicate hardware to that specific customer, which cannot be used to provide any kind of service to any other customer of the service provider," Herron says.

Microsoft recently reinforced its seriousness on the question. Herron says that in a recent quarterly SPLA update conference call, a Microsoft representative answered a participant's question by stating the dedicated-hardware requirement applied to all of the hardware utilized to provide the solution to the customer: servers, storage and, presumably, switching infrastructure as well.

"Given the highly virtualized environments of cloud service providers, this requirement tends to blow up the cost model for any customer that needs fewer than a few hundred virtual desktops," Herron says.

VDI is not cost effective with the current Microsoft licensing model versus just deploying traditional OEM desktops. The only way to make Microsoft licensing cost effective for VDI in the SMB market is to be extremely creative and "skin" Microsoft Windows Server OS instances to look like a Windows desktop, usually Windows 7, in order to leverage the monthly subscription-based SPLA.

CSPs that want to provide VDI via a DaaS model with SPLA are currently unable to due to the fact that the SPLA SKU for Windows 7 or Windows 8 can only be used for rental desktops, and unequivocally cannot be used for VDI. Without the ability to use SPLA, it's extremely difficult to provide a monthly subscription-based desktop at a cost-effective price either on-premises or in the cloud.

The bottom line is that a service-driven, multi-tenant model is required for cost-effective and scalable SMB deployments. The only way to make true VDI work in a DaaS model is to have Microsoft allow Windows 7 or Windows 8 as an SPLA SKU. Otherwise, VDI adoption will always be limited in the SMB market.

The only way VDI can really be cost-effective for the SMB is if it's deployed at enterprise scale by the CSP and then separated into smaller instances for each customer, just as virtual servers are configured by cloud providers such as Amazon.com Inc. or RackSpace US Inc. All platforms like those from VMware Inc., Desktone, Amazon and others that say they have DaaS are really just serving up Windows Server 2008 R2 instances skinned to look like Windows 7.

Amazon, for example, launched Amazon Workspaces in November as an SMB VDI solution. At a high level, Amazon deployed multi-tenant VDI via Windows Server OS Subscriber Access Licenses via SPLA. While this process works, it takes a lot of time and effort, with the end result being a much more complex way to manage a VDI/DaaS environment. To ensure a better user experience, Amazon added the Teradici protocol, PC over IP (PCoIP), which is included in each DaaS instance. Other problems with this besides adding an additional layer of management include, but are not limited to, application compatibility, driver issues and peripheral device support.

Another issue in the SMB market regarding Microsoft licensing is piracy. Most organizations buy desktops with the Microsoft Windows license tied to the device via OEM licensing. These OEM licenses are usually consumer versions, and in order to have each desktop set up on a corporate domain, they require professional versions of Windows 7 or Windows 8, and that's where piracy comes into play. Someone has a copy of the professional version of Windows and installs it on all these machines. Now, this was a huge issue while servers were on-premises. As more servers and applications are being migrated to the cloud, the next step is for desktops to follow suit. A viable strategy for Microsoft to cut down on piracy would be to have Windows included in SPLA for VDI/DaaS, and then there could be true VDI via the services provider model. This would help curb piracy, as well as allow for additional revenue for Microsoft with subscription-based SPLA licensing, especially in the SMB market, where the client never owns the software and will be paying Microsoft indefinitely (see Office 365).

Keeping Windows Relevant
Microsoft has controlled the desktop OS market for decades but its grip is slipping. Sales of physical PCs are in decline. While Microsoft retains roughly 90 percent of the global PC market, when the idea of a personal computer is expanded to include tablets and smartphones, its position is much worse. By some measures, Microsoft's share of that overall computing market is about 25 percent.

In these changing times, Microsoft is encountering trouble with the relatively slow uptake of Windows 8 and the fact that just as Microsoft is forcing users of Windows XP to move on, there are suddenly more viable non-Microsoft platforms to move to than ever before. Apple Mac OS X.x, Google Chrome and a few flavors of Linux are formidable threats, and PCs are no longer a necessity for every corporate user -- many can make do with a smartphone or tablet and a shared kiosk PC.

A major reason these options haven't been able to get a larger market share is legacy Windows apps. As long as there are Windows applications still in use, there's a need for Windows desktops. Now what happens as these apps fade out as more non-Windows, cloud-based apps are adopted? Cloud-based applications are agnostic to the platform on which they're launched, running inside browsers via HTML5.

Microsoft's control tactics on its own Windows licenses and the company's understandable desire to have customers pay to have every device connect to a Windows instance are hurting the growth of the DaaS market, but over time this will also boomerang to hurt Microsoft, too. Many DaaS companies have been creative and figured out how to make DaaS work. (One of them, OnLive, was too creative with a Windows 7 DaaS solution that ran afoul of the SPLA and was forced off the market.)

Mitch Crane, chief operating officer at Nimdesk, an up-and-coming software company in the DaaS world, says the industry won't necessarily wait on Microsoft.

"The SMB is willing to accept a solution that's on the creative side. Being creative and providing functional, cost-effective desktops doesn't require Microsoft. We see accelerated interest in Linux desktops in the DaaS model to help customers drive down costs. Organizations are able to use desktops like Linux Mint in DaaS to ensure the changeover from Windows is easier on users, with a very user-friendly [GUI] similar to Windows XP," Crane says. "If organizations have all cloud-based apps, then there's really no need for a Windows-based desktop. Unless Microsoft makes changes to their licensing model, Linux desktops in a DaaS model are exponentially cheaper than Windows desktops, as there are no restrictions on how VDI can be deployed with Linux."

No matter what happens, desktops are still required in the near future. There's a lot of money being poured into the DaaS market, and major companies such as Amazon, Google and VMware see value in serving desktops up in the cloud. Now, will 2014 be the year of DaaS adoption? That depends on one thing: Microsoft licensing. The real question is will Microsoft level the playing field for the SMB and allow Microsoft Windows 7 or Windows 8 to be used in a DaaS?

SMB customers and cloud services providers have been waiting years for this change to happen. One reason it may occur in 2014, according to Kumar Goswami, inventor of the Citrix VDI-in-a-Box, formerly known as Kaviza, is pressure from Microsoft's Pacific Northwest competition at Amazon.

"Microsoft licensing has always been a roadblock for DaaS but, in my mind, the November 2013 announcement of Amazon Workspaces, which bypasses the licensing by using a Windows Server OS with its SPLA, heralds the `mainstreaming' of DaaS in 2014. With Amazon providing DaaS, it will become widely known and accepted, lending credibility to [managed services providers] who've already been providing DaaS in this manner for some time. Also, I expect to see more service providers with DaaS offerings for customers who want a more personal touch than Amazon can offer," Goswami says.

No matter what happens, it's exciting to see how the market's evolving. Cloud services providers have been able to adapt and overcome Microsoft licensing up to this point, so when Microsoft loosens it's licensing around DaaS, DaaS will become mainstream for SMB and enterprise customers alike.

Recently, Microsoft has been herding everyone to a subscription-based model, and there are many reasons to expect that the company will continue this pattern by making full desktops a cloud-based subscription option within the next year or two. Now, a major change like that takes time, and it could be many more years before Windows desktops would only be available via subscriptions similar to SPLA or Office 365. The cloud is a violent catalyst and everything, both inside and outside Microsoft, is becoming subscription-based.