The Microsoft enterprise agreement renewal isn’t what it used to be – especially when it comes to discounts and on-premise renewals.
Many, if not most, Microsoft clients have jumped on the Office 365 bandwagon and are consuming subscription products from Microsoft. If you’re one of the holdouts, you’ve probably heard that Microsoft will refuse to discount Software Assurance for on-premise renewals – which can be particularly painful if you have previously enjoyed attractive discounts.
The simple truth is Microsoft has told Wall Street that its growth will be fueled by M365 E5 and Azure. Coupled with the fact that the company is not paying commissions to its sales representatives for on-premise renewals, customers attempting to renew an on-premise-only deal face an uphill battle.
Many feel that it is only a matter of time before they’ll have to acquiesce and move to Microsoft’s cloud products. And Microsoft is quite adept at making that happen by offering discounts to overcome objections. The reality is that if your expiring agreement was valued at $10M a year, and you previously received a 20% discount, that’s $6M over three years. Who wants to face a $6M price increase as a result of losing a discount? Microsoft will gladly retain your discount if you purchase the offerings it wants you to purchase – let’s say M365 E5. On the surface, this seems like a palatable deal. Yes, the price went up a bit, but you were able to retain that 20% discount (which is now >$6M).
Important Considerations for Your Next Microsoft Enterprise Agreement Renewal, Particularly When Moving to Cloud Offerings
Clients will sometimes overlook important considerations when moving to Microsoft’s cloud products as part of their Microsoft Enterprise Agreement Renewal. First, realize that subscription products require you to either renew the subscription or stop using the product at the end of the agreement term.
Second, using the example above, Microsoft will want payment for all the components of the M365 E5 bundle, regardless of whether you are using the products. That’s a big deal. Let’s say you’ve just signed an agreement for M365 E5, but still have a contractual obligation to VMWare due to your use of AirWatch. Get ready to pay for both agreements.
Finally, consider how quickly you will be able to deploy the products you’ve just purchased. Microsoft will require payment up front for all of your enterprise users – even if it takes you 2+ years to deploy M365 E5.
A valuable exercise is to determine both your intended consumption of the products. Generally, the component cost of the bundles is approximately 40% of the à la carte pricing. Using this rule of thumb, you can calculate the price you are paying for unneeded components.
In addition to the consumption conversation, it’s worthwhile to consider deployment velocity – or how long it will take you to deploy the components of the subscription products. Remember, Microsoft wants you to pay 100% of the subscription product for all users on Day 1 of the agreement. This approach may not make sense for some roll-out scenarios.
NPI strongly recommends that customers model their consumption and deployment velocity, and factor the findings into their discussions with Microsoft. We know from first-hand experience with our clients that this important exercise can save you a lot of money on your next EA renewal.