Application/Platform Separation in New PowerApps Licensing Model

Ever since Spring 2018 when the XRM and PowerApps platforms merged on a commercial level, I’ve found myself spending an ever increasing number of hours per week involved in licensing discussions and scenario planning. My initial exploration of the platform licensing back then came to the conclusion that many of the crucial details for actually determining what you can & can’t do with PowerApps licenses vs. Dynamics 365 CE licenses were simply not available at the time. Obviously this was not an ideal starting point for Microsoft to start pushing their Power Platform into new business areas that should see it capture the next 10 million developers from outside the traditional CRM field. But still, it is the legacy that came with the underlying platform that was designed to be sold as Sales, Service, Marketing etc. solutions delivered via traditional enterprise projects via partners that mostly had started back in the Microsoft Business Solution (MBS) days. What can you do about that, huh?

This year at the Inspire 2019 partner conference, Satya Nadella framed the role of Business Applications and Power Platform in particular with the following numbers:

(Click here to watch this segment of his Inspire 2019 Corenote.)

If there are indeed 500 million new apps that will be created in the coming five years, then those sure ain’t gonna emerge from the MBS style business model and development methodology. Today the world is full of both cloud service providers that offer low-code/no-code tools for building your own apps very rapidly, as well as savvy power users who are interested in seeing if they could take their Excel workbook desktop wizardry to the next level with these cool new tools that promise to deliver modern apps for this smartphone era. Since MS has obviously identified this new business potential that Power Platform can unlock for them, are they going to let the prior licensing model of Dynamics 365 stand in their way? Probably not.

It just so happens that Inspire 2019 was also the place where the upcoming licensing changes for both Dynamics 365 and Power Platform were introduced to the partner audience. Since Inspire is a public conference that anyone can attend, it also meant that any customers paying attention to the Microsoft ecosystem are already aware of the changes announced to take effect on October 1st, 2019. The slide decks for both sessions are available for download on the Inspire website for a more detailed look. On the PowerApps blog there is also a summary of these changes, which is nice. What’s really nice is that the comments section is open, which often isn’t the case for corporate announcements related to licensing (is it even a “blog” if there is no reader interaction opportunity given?). The product team has been responding to a lot of the feedback around the topic, which makes me optimistic about the possible fine tuning of the licensing model to align with what the outside world thinks about it.

Pay per App

As with licensing always, there’s far too many details in the Inspire 2019 news to cover in one blog post. Maybe I’ll eventually do a revised version of my “Demystifying Dynamics 365 & Power Platform Licensing” session from January, but right now I want to focus on one aspect: the price of an App. This is something the new PowerApps licensing model highlights in particular:

In short, what Microsoft will do in October is to retire the earlier PowerApps P1 and P2 plans and introduce new “Per App” and “Per User” plans. Nothing (major) is going to change with how the rights bundled into Office 365 and Dynamics 365 licenses work. The “Per User” plan will be the same price ($40) and mostly the same capabilities as the earlier P2, whereas the earlier “lite edition” of PowerApps P1 at $7 will be discontinued completely.

“What?!? How can they just take away the $7 plan and push everyone to buy a license that’s almost six times the price of that?” Yes, this is the hardest part about the changes, no doubt. I was a bit surprised to see this as the direction where Power Platform is heading, given how the citizen developers who’ve been playing around with the seeded Office 365 PowerApps license should rather be pushed into learning more about CDS, solutions and all those “real” application development tools that P1 previously offered. Nevertheless, after letting the new model sink in for a few days, I believe that this pricing mechanism makes a lot more sense than the earlier version.

A fundamental problem with the current P1/P2 divide was that it attempted to draw the line on app complexity. There were limitations like the inability to attach real-time custom business logic (workflows, plugins) on entities that were used by PowerApps P1 license holders. This was particularly problematic when operating within CDS environments that also serve as the Dynamics 365 CE app database (yes, they’re all CDS now): any developer or 3rd party app registering a plugin step on an entity like account would instantly have put all P1 users attempting to access it out of compliance with the license terms. Also the rights on “complex entities” and “restricted entities” differed between P1 & P2. Sounds complex? Yup. I had to write a blog post for demystifying these PowerApps “starter” plan capabilities just to get my head around on where the lines were drawn.

Something that would have eventually become a big problem with the old P1 definition was that it only allowed the users to run Canvas apps. Sure, those pixel-perfect mobile-first applications are what most people think PowerApps is made of, but that is a view of the world that needs to be deprecated. Model-driven apps are just as important area of what Power Platform represents (on CDS in particular), but that capability was reserved for P2 license holders only. Given that Microsoft is aiming to remove all of these artificial limitations between app types and eventually get all PowerApps customers to Run One UI, keeping P1 users locked from this future app convergence simply wasn’t a viable option anymore.

The solution that Microsoft has chosen to pursue with the new licensing model is to not limit the depth of features that a particular app can leverage from the platform. Instead the pricing is now based on how many different apps the user needs access to. If you need 1-3 apps, the PowerApps “Per App” plan will set you back $10-$30. If you need 4+, go for “Per User” and gain access to as many apps as you ever want to use within the tenant. Doesn’t this sound like a model that can be explained to not just the techies who work with entities & plugins, but also business decision makers? I think so.

What’s an App again?

The dilemma with any attempt to simplify enterprise software licensing seems to be that you’ll invariably end up introducing more moving parts into the machine than you can remove from it – because that machine is already running and you can’t just do a complete reboot without disrupting the customers who’ve built their business processes on top of it. This time the concept of an “App” will surely cause confusion, as the definition taken from the Inspire deck is as follows:

Combination of Power Platform assets that solves a particular business scenario.

Consists of max 2 custom apps (model-driven and/or canvas) and 1 PowerApps Portal.

So, the technical “App” you see in the maker portal for PowerApps isn’t actually the same as what a single “Per App” license allows the user to access, since it could be up to 3 apps in reality. But of course! For anyone who’s been working with these business applications earlier, the ambiguous use of the term “app” hardly comes as a surprise. In my 2018 blog post “What’s An “App” in Dynamics 365 Anyway?” I discovered five different things called an “app” within the same product – and that was before Dynamics 365 CE merged with PowerApps.

While I’d really love to see a license model from Microsoft that would also be technically enforced on the product level to the finest level of detail, I’m afraid we’re not much closer in making that a reality. Whenever language like “a particular business scenario” is used in the license terms, that’s a sure sign of future debates around what exactly is and is not allowed within the rules set out by Microsoft. We’ve seen this with the Team Member license already, so hopefully the lesson has been learned and there will be more detailed guidance released as we get closer to the launch of the new PowerApps licensing model.

Just the App, no platform, thank you

In the past we as MS partners always had to sell the idea of using XRM (and later PowerApps) as the platform that has potential to run an unlimited number of applications for managing the customer’s various business processes. Some customers have seen the light, but I’d bet the vast majority have been out to just buy a CRM system that can fit their current requirements and scale to cover future needs. Everything else has been a bonus. This approach, which before the arrival of PowerApps P2 SKU required you to pay for a Dynamics CRM/365 App to even get access to the platform, has in my opinion been undermining the value of the product.

Introducing a $10 “Per App” license is a brilliant way to put a definitive price tag on the functionality included in the platform. Any cost on top of that is the price you pay for the actual application functionality that’s addressing your business needs instead of just making something technically possible. It could an ISV App installed from AppSource or something built just for you, by a partner or your internal application development resources. In the ISV scenario you might pay $40 per user to the company who owns the App’s IPR, supports it and maintains any related services. Your total license bill would then be $10 + $40 = $50, if you haven’t identified the need to subscribe to the “Per User” all-you-can-eat plan for PowerApps. You could buy the keys to the full platform if you want, but you can also buy just the specific Apps you need and move on in your life.

This same pricing logic can and should be extended to how we think about the first-party applications from Microsoft. Let’s take the Sales App as an example, which is offered both as Dynamics 365 for Sales Professional App at $65 and as Dynamics 365 for Sales Enterprise App at $95. While there are functional differences in the Sales application itself (see feature comparison), the fundamental difference is that with Enterprise you get the platform rights (essentially PowerApps P2) and with Professional you only get the app. These could be illustrated in the following way, where the Professional version is built on the $10 “Per App” license and the Enterprise edition on the $40 “Per User” platform license:

This illustration tells a lot about why I’ve never consider the Professional plan a very attractive offer. You pay the same money ($55) for the actual Sales application as you do in the higher Enterprise version with more features, but you lock yourself into a limited number of allowed customizations within that Sales app. As you skip on paying for the platform use rights, any creative extensions like building custom Canvas apps on top of your sales data to serve mobile scenarios are off limits. You’re subscribing to SaaS rather than aPaaS (application platform as a service).

This is, however, a choice you are perfectly allowed to do, if the capabilities within Sales Pro are a good fit for your current and near term needs. No one should be forced to pay for the platform functionality when all they really want is a pre-packaged SaaS app for a specific scenario. Given that your $65/user/month Sales CRM will still be built on the same Power Platform that powers huge enterprise level Customer Engagement systems, the scalability of that solution will be world class. The integration options and ways how you can make use of your customer and sales data from a cloud based Dynamics 365 system will blow most of the competition out of the water. Oh, and if you ever need to support more scenarios than what the Professional license covers, you can always purchase this via “Per App” or “Per User” platform licenses, without having to migrate to a different service.

Buy vs. Build

It may not be immediately obvious how the $10 plan shakes up the business around Dynamics 365. Many will probably look at it as the replacement for the current PowerApps P1 and think about Canvas app scenarios for citizen developers rather than CRM systems. That is an easy mistake to make, but a mistake nonetheless, as what you can build with the $10 PowerApps “Per App” plan is every bit as powerful as with the $40 plan or the $95 Dynamics 365 Enterprise apps. Model-driven apps, CDS, SDK, custom connectors, all of it is going to be available starting at $10 per user per month. Yes, storage capacity and API limits may vary based on plan, but app complexity is unlimited, i.e. as complex as you dare to dream.

For as long as there have been custom entities in the platform (meaning from 2005 & MS CRM 3.0), people who design the actual solutions for customer organizations have been contemplating whether they should customize the default functionality in the Dynamics application or build their own by using the platform functionality. Before PowerApps, there wasn’t a way to license just the platform, so you essentially already had this standard product called Dynamics CRM / 365 Customer Engagement installed on the XRM server and you had to pay for it, whether you use its features or not. First the cost of a “roll your own” app dropped to $40 with PowerApps P2, now it has further decreased to $10 when paying per app.

Partners who have understood the direction that Microsoft Business Applications Group is taking will already have explored the opportunity of building on top of CDS as an alternative to first-party Dynamics 365. Now when the new licensing model drops the cost of entering the platform without any MS apps to $10, far more partners and customers will be asking themselves the question of could they reduce the Dynamics 365 license cost – even up to 92%? If you’re wondering whether this is something that is technically even possible and let alone something that Microsoft would allow to happen, you obviously haven’t been listening to the lessons from Steve Mordue about what PowerApps really means for the business of BizApps.

Here’s the thing: the worst that can happen to Microsoft if customers and partners start to increasingly build their own solutions instead of buying/reselling and customizing Dynamics 365 Apps is that there will be more business applications running on the Power Platform. A growing ecosystem of partners building more targeted vertical apps, which in turn will better serve a larger variety of customer organizations in different industries. More customers pouring their data into the MS cloud will make it ever more lucrative a business for external cloud service providers to integrate their offering with the Power Platform, all via the AppSource marketplace that MS governs.

“Hmm, why does it sound like this worst thing that could happen is actually the best thing that could happen?”

Even from the Dynamics 365 product perspective, the growing competition on Apps from third parties that offer solutions for different types of business needs isn’t really that bad, because now it’s a fair game. Since the platform features have been clearly separated from the application features, now every team building on top of Power Platform has the chance to design and develop the kind of products they envision to be the best in the market. Sure, there’s a bit of an advantage still in being part of the same corporation that develops the core platform, but I can imagine there having been a lot of friction from internal dependencies in the past, too.

The other licensing model change that is taking place on October 1st, the discontinuation of all Dynamics 365 Plans (including CE Plan), must also be tightly related to this current platform strategy. Rather than bundling all of Customer Engagement into a single license (and then selling it at a hefty discount in large enterprise deals), in the future every App on the Power Platform must justify its own value to the customers and be purchased individually by them. I believe this choice of selling Apps over Plans is simply an indication of what Microsoft sees as the direction we’re heading, where there’s going to be an ever growing number of 1st party apps in the Dynamics 365 product portfolio. To measure their success it’s important that the revenue generated can be tied to the actual App that’s driving the growth.

Conclusions

The “Per App” licensing model seems to open up a lot of avenues for growing the Power Platform business (check my earlier post for more details on these growth directions). Not only is it lowering the barrier for customers to try out individual applications built on the Power Platform, it also is a loud and clear invitation for partners to start thinking outside of the Dynamics 365 box – to leverage their expertise on specialized functional areas, segments and industries, then turn that into Apps that can be sold and deployed on top of CDS directly. As for Microsoft’s own product development, ending the old practice of selling the whole suite of enterprise applications in a single Plan will ultimately make room for a much wider portfolio of products to sell to the customers – which in turn may well increase their total spend on apps that run on this platform of choice.