Many businesses use the rights granted under a Services Provider License Agreement (SPLA) to deliver hosted software solutions or, optionally, rental hardware to their customers. Many other businesses also would like to use a base licensing agreement with Microsoft – like a SPLA – in order to equip resellers or other business partners in a supply chain to deliver hosted solutions or other services to customers with whom those partners have the primary business relationship. SPLA can work under those circumstances, but there are a few very important points to keep in mind:

  1. Keep the Chain Short. Microsoft’s biggest concern as the owner of software licensed under SPLA is maintaining some level of control over how its software is used by end users. One way it addresses this concern is by limiting the length of most supply chains under SPLA to only three links: (1) SPLA customer to (2) reseller/business partner (termed a “Software Services Reseller” or “SSR”), and (2) SSR to (3) end user. Thus, unless special terms are negotiated with Microsoft, a typical SPLA would not permit a first-tier reseller to distribute services to a second-tier reseller, who then would provide the SPLA-licensed solution to end users. By keeping the chain short, Microsoft can more easily rectify licensing problems through the use of the audit-rights and other protective measures included in almost every SPLA.
  2. Paper the Relationships. A SPLA customer’s ability to distribute its solution through a group of resellers under SPLA is conditioned on every customer-to-reseller relationship and every reseller-to-end-user relationship being reduced to written agreements that satisfy certain requirements described in the SPLA. Therefore, in order to participate as a SSR in the SPLA customer’s supply chain, each SSR must be ready to revise its client-facing agreements to contain the same kinds of terms that the SPLA customer would need to include in its agreements with end users. This may be a somewhat burdensome requirement for some hosting networks, especially those where the end-user relationships have not traditionally been tied to service agreements or monthly service fees.
  3. No Rental PCs in the Supply Chain. A typical SPLA will allow rental servers with Microsoft software to be deployed at end users’ locations, and that kind of service may be performed through SSRs. However, a typical SPLA does not permit rental workstation computers with Microsoft software to be distributed to end users without amending the SPLA terms to expressly allow such use. Even if those terms are added, however, the typical rental-PC terms often expressly prohibit the use of SSRs to deliver rental PCs with Microsoft software. The reason for this, again, is most likely attributable to Microsoft’s desire to control the use of its products – end users with a high volume of rental PCs running Microsoft software represents a more significant compliance risk for Microsoft than do the other kinds of services permitted for SSRs under SPLA.

It is vital for software solution resellers to be familiar with all SPLA terms that may affect the ability to distribute those services to end users and, where possible, to negotiate better terms before moving forward with business plans that might cause compliance problems down the road.