Friday, June 19, 2009

Microsoft OEM - Licensing of the Future

As I mentioned yesterday, I've been drinking the Microsoft Licensing kool-aid for may years now. Almost a decade!

But "back in the day" I built machines. So I have been a system builder longer than I've been a License Monger.

One of the changes I've noticed in the last 18 months is that we've begun selling OEM licenses again. There are several reasons for this:

- I client who buys machines one at a time and doesn't have a current license agreement can't get a single Office license. So they have to buy five licenses or one OEM.

- On two occasions, HP has had a great "Best Buy" offer on servers with the OEM version of SBS installed. Unlike Dell, HP makes rational decisions about installing operating systems, so we didn't have to nuke and pave. That saved us several hours of labor.

- Some clients are never going to downgrade and they don't think they'll ever need to move the license or re-install for any reason.

This last group is interesting because their only real benefit in licensing would be to replace the license in case of theft. They look at the License price of Office Pro and say $500 is too much money! They can buy an OEM version of Office Pro for $200. So if the machine is stolen, they can buy a new machine and re-buy the OEM product and still be ahead.

What can I say? "That deprives Microsoft of extra cash when our economy is in dire straits." Boo hoo.

Our official policy is to educate the client and help them to make good financial decisions. I've been in business long enough to know that a good deal on a hardware/software sale will lead to another good deal three years from now. I want to sell that client a new PC every three years until one of us dies.


Our mix of products and services is a pretty good fit for OEM as well. We sell the HP desktops that are "Office Ready." That means we only need to sell an OEM Medialess License Kit (MLK), enter a key code, and they're set to go. With the bloat of Office, that saves us 45-60 minutes of installation time.

As a managed service provider, we give away three hours of setup labor with each machine added to a managed service agreement. If we can lop off an hour at install, that makes us more profitable!

One final change that we've seen is that Microsoft is pushing us back to the OEM world.

The Home Server is OEM only. I own one. I use it.

Foundation Server is OEM only. I've never actually seen it.

The reason to move to an OEM model is clear: If you're selling a single server with no CALs, a license isn't necessary.

That's true as far as it goes. But, what about getting people hooked on licensing? What about adding Office licenses to the server agreement? What about downgrade rights and machine independence? What about Software Assurance?

I was in Redmond earlier this year and told the team there that I haven't been selling these products, in part, because they're not available through licensing.

One group of folks at Microsoft has been feeding me Licensing Kool-Aid while another group is serving up OEM Kool-Aid. I literally never looked at these products for my business because they weren't sold through licensing.

But things are changing.

IF Microsoft is going to release server products, no matter how small, as OEM-only products AND if I want to sell into those markets, THEN I will end up moving to more OEM products.

I blogged in February of 2008 about the future of Microsoft Servers at the low end. I am more convinced now than ever that this is coming true.

See Karl's Server Roadmap for Microsoft and Server Roadmap Continued. It seems to me that Foundation Server approaches that model very nicely.

In those posts I introduce a product called Biz Server Nano. I really hope Microsoft uses that name! If they don't, I'm having stickers made.

Because the market is micro-businesses, one of the key components is price. Why pay $2,000 for an operating system when it's going to run on a $300 piece of hardware?

For 1-10 person businesses, 2/3 of what they need out of technology will be in the cloud. The other 1/3 will be on appliances. You can't really sell a licensing model into that business. OEM makes sense.

Gulp. There, I've said it.

But if that exact same technology works for people who have 20, 30, or 40 users, then licensing still makes sense. Even if you eliminate CALs there are good reasons to have that client on a licensing model.

I've been drinking Licensing Kool-Aid so long my lips are permanently stained.

But I see a day when we'll be back in the OEM model -- If Microsoft doesn't make our preferred products available through licensing.


SBS 2008 book by Microsoft Employee and SBS Community member David Overton
Available Now at SMB Books


  1. Karl over here business owners buy licenses because they come with PC's.
    Most of them are not aware of license agreements; also most of them skip one upgrade cycle.
    Our economy has always been in recession and piracy is huge.
    Your last two licensing articles are in line with latin america reality.

  2. Does Foundation Server really even exist as a product? I know they've announce it back on 4/1/09... but I have yet to see a SKU of it, or any pre-configured system that has it installed.

    In fact, it isn't even listed in the Microsoft Product List that your referenced a couple days ago.

    It seems it is an announced product only... and not released.

  3. Hmmmmmmmm.

    Good point.

    Does Foundation Server really exist in the wild?

    I believe it's the same team as Home Server and SBS.

    Anyone at Microsoft care to chime in?

  4. We can order the Foundation Server Reseller Option Kit for HP systems. It's HP sku is 537100-B21.

  5. Very good. I see this on Ingram for $230

    And have you actually ordered, installed, etc.?


  6. We've got a quote out on a WFS box this week, so if the end user bites, I'll let you know how it behaves.


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