Why Microsoft May Stop Selling On-Premises Server Licensing

I have been invested in obtaining Microsoft certifications since 1997 when I earned MCP status in Windows NT 4.0. Since then I have obtained eight MCSE’s over the decades. Last week, Microsoft decided to end the MCSE, MCSD, and MCSA programs at the end of June this year.

This tells me a lot about Microsoft’s future plans, and we should all be concerned. The only Microsoft certification subjects left besides a Windows 10 cert, is Azure (a.k.a Cloud) based. Most business and organizational server and Active Directory deployments are still on premises, but Microsoft is encouraging learners to abandon that practice and learn only things that will be in the cloud. I believe that Microsoft will abandon selling licenses for on-premises servers within the next decade.

Here is the big picture. Many corporations and governments buy a version of Windows server and hang onto it for a up to ten years in many cases. My proof of this is my 2 decades in IT support. I have seen it and it continues to happen. The only way Microsoft has any chance to make them upgrade is to stop supporting the older versions. When Microsoft sells a license verses renting out a server, this is what happens:

Azure server running Windows Server of any supported version: This cost varies by the amount of RAM, storage and processing power you require. My personal experience is an average of $500 per month per Azure hosted Windows server virtual machine. I have the credit card statements to prove it, and these servers were not high end or overly used.

On Premises server licensing cost over 10 years- $800

Azure cost over 10 years - $60,000

Now you can see why Microsoft is incentivized to keep you from buying a license with those kinds of rental returns. Even if my figures were grossly off, Microsoft still makes out like bandits.

Microsoft has a calculator that is supposed to help you figure out what the monthly cost will be, but it’s so complicated, you won’t know until your credit card is billed. Not even Microsoft consultants or sales reps can figure out the calculator. I know because I have interviewed more than a dozen of them, and they don’t understand it.

The same can be said of Office 2019 and Exchange Email. You can still buy them both, but Microsoft makes it so easy to rent instead of buy, that many companies are moving to their hosted solution. I’m not saying that it is bad to move to the cloud. Exchange Server has been plagued by so many bugs over the years that it’s a much better idea to move to Microsoft 365 and away from on-premises for small to medium-sized businesses. For larger companies however, it is a bad idea to move to many Microsoft online services exclusively because the break-even point is about 200 users. It will cost large companies more to move to Azure, by a lot.

If that doesn’t bother you then great, go for it. However, this doesn’t solve our Active Directory problem. 95% of all Fortune 500 companies use Active Directory. To move your AD to the cloud could add a lot of expense, as well as cause your company downtime during internet outages. Besides paying more than an on-premises server, how much money would it cost your organization today to be down if your staff couldn’t securely log into their computers?

Let’s say you have 100 employees that produce $40 per hour for a company. That may be a low to reasonable amount of income as per some authorities on the subject. That would be $4,000 per hour. The average company has internet outages of 87 hours per year. That would equal $348,000 per year you would lose if you used Azure Active Directory without onsite Active Directory servers. Plus, you would pay an additional $15-20,000 for Azure AD servers to authenticate your users alone. This wouldn’t even count the other application and storage servers you need on top of that if it’s all in the cloud.

Some may say, I won’t have long internet outages long because I have backup internet. That’s great however I have found several problems with that. The biggest is that although you think you're using a different backbone for your second internet connection, the junction point up about 5 internet router hops is usually the same. That means your backup internet and primary internet end up taking the same route at some point, and that doesn’t really mean you have a backup internet at all. Try doing a trace route and see for yourself if it’s true as I have found it to be. The next issue is that many times in my experience if you don’t use the backup route the ISP shuts it off after 6 months. Sometimes after even less time. They will even give away your static IP addresses as has happened many times with my Comcast static IP blocks. However, they will continue to bill you for all of it every month regardless. When you end up needing that backup ISP, it won’t be available for days in many cases to get it going again.

Back to our original licensing problem with Microsoft: If you have on premises servers you would need physical servers to install them, and Windows on-premises licensing, it would cost you approximately this:

Server hardware - $20,000 (Would last 4-5 years)

Licensing for 2 physical servers and 4 free virtual VMs that come with it - $1,600

Over 5 years your total cost would be approximately $21,600

If you use Azure for 6 virtual servers, and no hardware or software on-premises products, your approximate cost would be:

6 virtual machines at $500 per month = $36,000 per year

Over 5 years your total cost would be approximately $180,000 plus downtime costs of 435 hours per year as per above. This could take you into the millions of dollars over 5 years.

Many Microsoft clients have hundreds of virtual machines that could raise the cost to astronomical levels.

Microsoft is pushing harder than ever and being even more secretive about what it charges for its Azure services. It may be time to push back and make sure Microsoft will continue to provide us with on-premises server and other licensing, as well as certified consultants and staff who know how to manage them instead of just their Azure cloud products. 

Robert McMillen MBA, MCSE, MCT

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