Microsoft Licensing 101

Last Review: August 4, 2010
Product(s): All Microsoft Products

There are 3 ways to purchase Microsoft software: 

1. Retail - An example is purchasing a box product like Office at a retail store such as Best Buy. Generally, this is the most expensive way to buy and provides no upgrade rights.

2. OEM - Purchasing a new computer with Windows 7 and Office 2010 pre-installed from Dell is a common scenario. At first glance, this may appear to be the cheapest approach. However, the license lives and dies with the original machine and may not be installed on any other equipment. For 5 or more workstations, the hassle of keeping up with the media for each machine and no upgrade rights is the the second most expensive way to buy Microsoft software.

3. License Agreement - There are several 3 types of agreements:

   1. Open: Approximately 10% less than Retail and designed for small and medium businesses with a minimum requirement quantity of 5 required. Open Business is a 2 year license program with upfront payment and Open Value is a 3 year program with either upfront or annually spread payment. Both may be purchased with or without Software Assurance (see below) and cash-back incentives are offered regularly from http://www.microsoftincentives.com.

   2. Select: Similar to Open at 15% less than Retail for approximately 100 - 249 users and similar Software Assurance and payment options.

   3. Enterprise: 43% savings versus Retail for large organizations who have more than 250 users. These agreements are negotiated directly with Microsoft and managed by a national Large Account Reseller. The idea is to have a nominal cost for all products per employee/workstation. There may be incentives to assist with implementation and true-up fees for annual growth can be substantial.

Common terms and confusion points:

1. Microsoft licensing is often sold per sip, meaning a server license and a Client Access License (CAL) per user or device.
2. Generally, you purchase User CALs so it is just one CAL even though a user may have an office and home PC and a notebook. Purchase Device CALs for shift scenarios in which multiple shifts of users use the same equipment. A CAL has the right to access all servers in an organization.
3. Some products may be purchased per processor. This means physical processors regardless of how many cores. For large numbers of users, per processor licensing is usually more economical.
4. Software Assurance is mainly upgrade protection, but many products include additional perks such as free home use rights. Software Assurance is approximately 17% - 23% additional at purchase and then 17%-23% of the product cost at agreement renewal. SA should be purchased on software that you wish to regularly upgrade and once purchased you should continue to renew as after the first renewal, SA is the most cost effective approach.
5. Hardware warranties are typically 3 years and match well with SA refresh. However, if you are more risk adverse and replace hardware every 4 years or more, then SA purchase is not recommended.
6. Microsoft product lifecycles are generally 5 years standard support followed by 5 years extended support (no major product updates and generally not available for sale except as downgrade). After 10 years, no support is provided.
7. A license is perpetual even after the agreement has expired, meaning you don't have to uninstall it. However, you also don't have upgrade rights.
8. There is a 90 day grace period after a License Agreement expires to renew.
9. As stated previously, OEM licensing is married to the equipment and cannot legally be installed on another machine.
10. Penalties for copyright infringement include criminal fines up to $250,000 and 5 years in jail, plus civil damages from the manufacturer for delinquent licenses up to $150,000 per product. Often the negative publicity is as devastating and the unexpected cash outlay.