In-Depth

SPLA: A New Way To License Software

In the era of Software+Services, Microsoft takes a different approach to software licensing than Web hosting companies and managed service providers. Microsoft's Michael van Dijken explains in the Q&A.

• By Michael Domingo
• April 21, 2008

But traditional volume licensing agreements, through such programs as Select License or Enterprise Agreement, just don't fit in such a business model, in which hosting companies would have to commit to buying software over a protracted term, which might be longer than most relationships that a data migration and storage company, for example, might have with a client who might be looking mainly for temporary remote storage services.

That's where the Service Provider Licensing Agreement (SPLA) comes in. Michael van Dijken, Microsoft's lead marketing manager of hosting solutions, spoke with Redmond Channel Partner about the company's efforts to simplify the licensing process for those delivering hosted applications.

Can you provide the context for what the communications sector group does? And do any of the solutions you're developing in any way relate to the "Windows Live" brands?

Within the communications sector group, we look at three subsegments. The first one -- and the one that stands out with a name like communications sector -- is telcos, mobile operators, cable companies, even satellite companies; essentially, the companies that own and operate the networks over which voice and data is delivered.

The second segment is the media and entertainment industry. Those are the companies that create the content that gets delivered over those networks. So, there's a logical tie-in there.

The third segment, and the one that's relevant [to our discussion] here, is the hosting provider industry or service provider industry. These are the companies that are delivering some sort of hosted application or service to their customers. It could be as basic as [hosting] a domain or a Web site, or it could be as complex as IT applications.

To clarify, this not the Microsoft hosting initiative, the things that you see under the online or the "Live" brands that Microsoft is doing; these are products and services that our partners host. They host them on Windows and they use our software or applications written on the Microsoft stack and they deliver those to their customers, but they're run and managed out of their datacenters -- not Microsoft.

Let's talk license agreements for these providers. I was pointed to the Service Provder Licensing Agreement and was struck by how it seems to be similar to the Software Assurance and Enteprise Agreements. Can you give me the context or tell me what's similar or different from the SPLA?

As a group, the hosting group has solutions which we take to market, and hosters then deploy and run those solutions, which allows them to deliver hosted Web sites, hosted databases, hosted Exchange, hosted CRM, etc. The ISVs and third-party applications have the platform.

We also have a licensing program that is specific to their business: the Service Provider License Agreement. It's an agreement that was created specifically for this industry, for companies that are using our software to deliver services to their end customers.

The program allows them to essentially pay for our software on a monthly basis, which is the same way that they bill their customers. There are no term commitments, so they're not locked in like they would be with a three-year Enterprise Licensing Agreement. They essentially pay for usage as long as they have customers using their software. There's no upfront fee, so they don't have any large deployment or installation costs that needs to get amortized over the life of a contract and then is at risk, for example, if the customer were to leave.

It has a type of Software Assurance built into it. It always includes the most recent versions of the products. So, when we migrate to Windows from 2003 to Windows Server 2008, that is automatically avaialbe on the SPLA.

It seems like it's a work in progress and that you're going in a new direction with the SPLA, allowing lots of ISVs and hosters who are fine-tuning their businesses so they provide more managed services. Is that a correct assessment?

The first half is incorrect; the second half is correct. We've been doing this for eight years, maybe even nine -- so, work in progress. Yes, we make modifications and improvements to the program every quarter and make tweaks. Pricing, we modify on an annual basis. But the SPLA is tried and tested. We have, at last count, about 6,500 service providers that have signed up for the SPLA and are using that as their licensing vehicle to deliver services to their customers.

So those service providers are the ones I know well, like the ones who host Exchange or storage services...

It runs the gamut, from companies that you'll know well, like Rackspace or GoDaddy, to some very small niche players that are focused on very highly segmented markets, to companies like John Deere, who provides a hosted Exchange service to their dealerships and they do that using the Service Provider Licensing Agreement. There are also some hospitality service companies -- hotel chains and companies like that -- that are using the same type of [business] model.

When you look at the service provider license agreement, any time a company provides a service to another company using our products, then they should be using the SPLA to do it. It's specifically designed for that model.

Are there advantages to using the SPLA as opposed to the other licensing agreements? Is this the agreement that most hosters and ISVs are supposed to use?

There are benefits to using the SPLA in the service provider context, where you're providing services to a customer, but at the same time, if they're delivering services to a third-party customer, then they need to be using this SPLA to be in full compliance. That is the prescribed method for licensing our software.

The benefits are designed specifically to map to their business model, as I mentioned: no upfront costs; month-to-month licensing; no term agreements; there's some sort of Software Assurance built in; they get a 60-day trial period when they're setting up a new customer, so they can test and build the infrastructure before they go live without having to pay Microsoft...There are a lot of things built into the program specifically to meet the needs of service providers. So, there are great benefits.

At the same time, if they want to be in full compliance with our licensing, a service provider cannot use their Enterprise Agreement to procure license which they can then deploy their datacenter on behalf of third-party customers.

What kind of auditing is done to make sure these companies maintain compliance?

Depending on whether they've signed the agreement with us or with one of our resellers, like Software Spectrum or HP, there is a reporting tool that they go ahead and complete on a monthly basis. It basically tells us that's what they've used this month and the tool will generate an invoice. That's kind of the process.

In terms of auditing, the tool has some sort of intelligence built into it. It'll look at usage flow and things like that. For the most part, it's an honor-based system. In the past, we have had a situation where we had to go and do an audit and taken the appropriate action or worked with the company to resolve the compliance issues. But for the most part, it's honor-based.

Traditional licensing is for those who license our software for their own use. The SPLA is for companies licensing our products for the delivery or services to third-party customers. Remember that traditional licensing has generally a three-year commitment, if it's volume licensing and it has upfront payments. The SPLA has none of those commitments.

The No. 1 point that resonates here is that it's a subscription-based licensing system for service providers. If you think about the SaaS model, what's one of the key selling points? It's that people don't have to invest heavily in software up front. They can pay on a usage basis month to month, which is much easier and much more palatable.

What kind of effort are you making to educate service providers on licensing?

If you look at our business in general, we work with 6,500 partners and it spans a broad array, from traditional Web hosters to companies focusing on ISVs who are taking their applications to market as a SaaS application. And we do a lot of work to enable those companies to work on our platform to help them go to market.

And I know your particular interest is in the area of certification. We have a certification program as well, for this space, so that companies can be certified in building and running a hosted infrastructure. We're about to launch a competency within that program specifically for service providers who are going to market with our products.

There are a lot of things we're doing with the business. It continues to grow 30-percent-plus, year over year. That's a pretty decent growth number. And as the market moves to adopt this buzzword that's called "SaaS," there are companies that are in a prime position to take advantage. It's a very interesting space.

So, that growth seems to explain why Microsoft is putting some emphasis on Software+Services. Is that right?

Correct. If you look at the company's approach to Software+Services -- aside from the fact that we believe in a model that's a hybrid of having something with a more traditional deployment and something that's delivered as a service and you have the two working together to enhance the experience -- we also talk about kind of a power of choice on how to consume software.

We see three models there. One is traditional, on-premise software. Another is software hosted by Microsoft. And one is software hosted by third parties -- non-Microsoft -- and this is where our partners in this channel come into play, as they host Microsoft products or ISV applications that are written on our stack and deliver those to their customers.