Enterprise IT is on the losing end of Microsoft's CAL price hike

Computerworld - This month's price increase for Microsoft client-access licenses (CAL) is a "lose-lose" deal for enterprise customers, but will likely yield a major revenue boost for Microsoft, analysts say.

On Dec. 1, Microsoft overhauled its enterprise license pricing, most notably raising the price of "user" CALs by 15%.

CALs are required for corporate workers to legally access Microsoft software running on application servers.

Microsoft previously priced its two categories of CALs -- "device" and "user" -- identically. Device CALs are tied to a specific device, typically a desktop or laptop PC. The user CALs allow an enterprise worker to access applications on servers from multiple devices, such as PCs, tablets or smartphones.

"Microsoft is looking for new revenue," said Daryl Ullman, managing director of Emerset Consulting Group. "Changing licensing is always a way vendors deal with a revenue problem."

Ullman and other experts see the user CAL price hike as a bid by Microsoft to cash in on the burgeoning bring-your-own-device (BYOD) movement, where people use three or four personal and/or company-owned devices on the job.

It's no coincidence that the increased revenue will come mostly from mobile devices, experts said.

Today, Microsoft has virtually no mobile presence. So it's looking to make a quick buck by sponging off the popularity of mobile devices running other vendors' operating systems, Ullman said.

Jeff Muscarella, a partner with Atlanta-based consultancy NPI, wouldn't speculate on how the price increase will affect Microsoft's coffers. But in a report to clients, NPI said that the move "could mean billions" for the vendor.

He said the CAL hike is relatively small, but Microsoft's licensing schemes remain complicated, which hurts users.

"Whenever licensing is complicated, it benefits the vendor," he said. "A CFO once told me, 'Mystery equals margin.' That's true with Microsoft."

Thus, he called the CAL price increase a "lose-lose" proposition for Microsoft's enterprise customers.

Paul DeGroot, an analyst at Pica Communications, described paying the 15% increase as the "lesser of two evils."

DeGroot said many companies don't realize they are obligated to buy client-access licenses for devices, so if Microsoft were to audit their licenses and find there aren't enough, it could drop the hammer.

"It could get nasty," DeGroot said. "All those sent emails with the helpful signature 'Sent from my iPad,' for example, are tip-offs to underlicensing."

Even with the price hike, though, DeGroot said he will continue to recommend that clients buy user CALs, reasoning that as mobile devices proliferate, they're still the better deal.

Some also see Microsoft's new emphasis on user CALs to be part of a larger strategy to shift customers to subscription-based licensing. "They've thought this out," said Ullman. "They are using the licensing push to get customers to join their cloud wagon, and once you're hooked, they'll want to move you to subscription-based licensing."

Although the price increase went into effect Dec. 1, users will pay already-negotiated fees until their current contracts end.

This version of this story was originally published in Computerworld's print edition. It was adapted from an article that appeared earlier on Computerworld.com.

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