The Microsoft Enterprise Agreement (EA) is the primary contractual vehicle for enterprises to make volume, normally enterprise-wide commitments, to the increasingly expansive solutions and services stack from Microsoft.
For most businesses, this was a vehicle to optimally buy Microsoft Office and Windows, enable users to access Server Products like Exchange, SharePoint or Skype, and in more recent iterations, commit to Microsoft Cloud service offerings like Office365 and Azure.
Modern Commercial Strategy
Redmond has sought to increase profitability of their cloud business and pivoting their licensing partner ecosystem towards cloud adoption, management and support services; and away from the associated cost of channel rebates, documents of sale, and growing monetary value of discounts incurred by Microsoft (enough to buy a company the size of Citrix).
In 2016, Microsoft reported 49% profitability for cloud services in earning reports to investors. In 2017, Microsoft EA renewals bookings grew 14% and 9% in constant currency. Microsoft Cloud profitability increased 8 points to 57% and Satya Nadella secured his target of a $20B annual run-rate cloud commercial business. The main drivers of growth, was Office365 up 42%, and Azure up 90% in 2017.
As licensing costs also increase, their end-customers are under pressure to seek independent advice, ensure value, and enable cost savings at their next EA renewal.
Microsoft’s modern commercial strategy greatly incentivises standardisation on an always-up-to-date platform for productivity and communication supported by the Microsoft Cloud. Microsoft exemplify this strategy through the cloud-supported solutions with ongoing security and feature updates provided by Microsoft.
The new generation of cloud supported applications and operating systems act as a ‘traffic light’ that are switched on from ‘red, to amber and then green’ with cloud services. Under the traditional on-premises software model, access to new features were accessed by upgrade of the office client to the latest software version, on a four or five year run lifecycle. Microsoft have increased this release and update cadence, with an extensive ecosystem of Office365 and Azure Identity Services accessed by Office, and Windows 10, and supported by SCCM, via a continuous service feature and support model, on a semi-annual release schedule.
To encourage upgrade of the Office ecosystem, Microsoft made a recent blog announcement that as of October 2020, the traditional Office on-premise MSI application access to Office365 services will end at the expiration of “mainstream” support. Impacting customers limited to Office 2016 or 2013 releases and driving customers to ‘make a decision’.
Microsoft also announced recently that Office 2019 ‘perpetual’, aimed at on-premises customers, is expected in the second half of 2018; but how does this align with their wider ‘hit refresh’ strategy led by Satya Nadella, to deliver a $20 Billion run-rate cloud business? While Microsoft may have now confirmed a new traditional (MSI) release of Office 2019 for next year, the nomenclature of the announcement suggests this is targeted at customers who are running on-premises environments. Their support for “office perpetual” interoperability with Microsoft cloud services, and the available programmes it will be sold under, remains to be seen.
Accordingly, customers are responding to an eroding discount environment, with a strategic focus from Microsoft to position ‘premium’ tier 1 services within ‘expansive’ licensing packages, challenging Microsoft on both quantitative value and drive licensing cost savings.
A Structured Approach to Renewal
The advantage of Microsoft Advisory Services is that we can work with the customer to understand their roadmap, and provide independent assurance to secure the right technology, on the right contracts, at the best price.
I normally recommend a ‘classical’ approach, enabled by data and human expertise, to assess the opportunity and impact of e.g. volume spend or platform commitment, mixed and joint bundling, licensing models, investment cadence, consolidation and bill of materials reduction and optimisation, to provide recommended client optimised scenarios and a clear commercial forecast, based on a customers own business and IT objectives.
Our consultants can help assess a true ‘baseline’, and optimum renewal scenarios for a client to enable structured analysis to empower the procurement team, illustrating the impact of new licensing metrics, software use rights changes, product price increases, price list increases, currency impact, business growth, end of life products, planned new IT projects and programmes, and assess current utilisation; to hold a vendor accountable for their commercial position and quantative or qualative deal principles.
Our team are dedicated consultants, backed by bespoke tools that allow us to provide analysis at a “dash”, giving us some advantage over other competitors are doing this analysis entirely manually, or indirectly. This allows to present reliable and accurate commercial models for fact based decision-making.
We have a proven track record of working on these renewal programmes and a passionate team who love what they do, we work collaboratively, and to your brief.
10 Recommendations for your Microsoft EA Renewal
- Provide a renewal programme lead, with consultant resource from our Microsoft Advisory Services practice.
- Independently assess renewal scenarios to provide for fact-based logical discourse with Microsoft.
- Focus on different licensing and investment builds to provide an accurate commercial forecast.
- Assess your current, and future investment in Microsoft solutions and services.
- Secure advice on contract design, structure and terms aligned to that roadmap. The cost of the same bill of materials can vary greatly.
- Seek independent analysis of any commercial offers from Microsoft, further enabled by current insight into current deal structures, sourcing options, and pricing.
- Understand strategic solutions and services that are important to Microsoft.
- Review licensing optimisation and bill of materials reduction for ‘big ticket’ server products like SQL Server and Windows Server
- Leveraging licensing assets for optimum investment in cloud services, whether Azure or AWS
- Understand your curent-state environment, and assess software compliance, with a trusted advisor. Seek independent advice on your True Up.
We all know that there is increasing pressure on software buyers to control cloud spend, with demand for value realisation and clarity on the licensing TCO of cloud services. Accordingly, independent advice, and data supported insights can provide enterprises with confidence and clarity as they commit to the next wave of Microsoft products.
As Microsoft develop a modern commercial strategy to achieve economies of automation and consolidation, towards one product catalog, pricing engine and contract vehicle; the challenge for business and IT leaders is to retain negotiation advantage and assess quantative and qualative value, and enable spend management over the lifecycle of a contract.
But it’s also an opportunity for leaders in the market, to provide independent trusted consultancy services offering intelligence insights, digital platforms and adaptive sourcing, and cloud spend management services, to answer the demands of the digital business. The Microsoft EA renewal remains a key moment to make decisions not only on adoption of technology, contracts, and sourcing, but how the cloud investment is managed and supported over the term to drive value and enable ongoing spend reduction.
This website is a way to give back to the licensing community and as an information resource for all customers that work with Microsoft software and licensing. I hope you find it of value.
Tony Mackelworth is Head of Microsoft Advisory Services at SoftwareONE
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