Microsoft’s New Strategy Creates New Licensing and Contracting Challenges for Enterprise Customers

By Jeff Muscarella

Partner, IT and Telecommunications, NPI

February 12, 2015

Interested in learning more about NPI’s services?

Contact Us

Cloud-first. Mobility-first. Device-agnostic. These are the imperatives that are driving business and innovation strategy at Microsoft today. They’re also driving big changes to Microsoft’s licensing and contracting practices, and enterprise customers are feeling the impact.

The gap between Microsoft’s vision and the reality of its core enterprise customers is still wide. The majority of these customers still rely on the vendor’s on-premise software products for desktop productivity and server infrastructure. And, while the simplicity promised by Microsoft’s cloud services is an exciting prospect for some companies’ long-term IT strategies, the reality is that the transition from on-premise to cloud and mobile can be a bumpy road. Some concerns include:

The pressure to get enterprises on board with Microsoft’s new strategy is driving up audit activity. Nearly one-third of Microsoft’s EA customers are expected to undergo a licensing audit in 2015. Given the sprawl of the Microsoft estate in most enterprise organizations, and the complexity surrounding product use rights, the likelihood of non-compliance is high. In these instances, Microsoft the leverage it needs to “motivate” customers to migrate to services-based offerings.

Experts and customers are concerned that Microsoft’s support infrastructure for the cloud is immature. Microsoft is running a dual-track support strategy by supporting both legacy products and cloud services. They have vast experience in the former, but limited experience and resources in the latter – and that’s a problem. Microsoft provides business-critical productivity solutions, which can’t afford to be delivered at service levels that are sub-par. This concern is underscored with the release of Windows 10, which will deliver new features and functions automatically as regular updates.

The real beneficiary of standardized, “simplified” licensing and terms is Microsoft. Part of Microsoft’s cloud-first strategy is to simplify and standardize how it contracts with enterprise customers. The vendor is actively making efforts to consolidate licensing programs (e.g. EAP/ECI have been replaced with Server and Cloud Enrollment) and standardize terms (e.g. new Online Service Terms that consolidates Product Use Rights and SLAs for all online services). But these changes often translate into higher costs and the transition is tricky. In other cases, Microsoft’s move towards simplicity appears to be more targeted at its consumer and SMB customer base. For example, the free upgrade to Windows 10 will not be free for enterprises.

Pricing is all over the place. Take Azure Active Directory and Multi-factor Authentication Management, for example. Both offerings were overpriced initially, which forced Microsoft to adjust the price through complicated discounting until the next list price was published.

The future of the EA and SA appear to be in question. As Microsoft shifts to service-based offerings, many enterprises question the future of the EA and SA. The company is clearly struggling to find a contracting model that handles its business today while simultaneously motivates customers to get on board with its longer-term vision.

With so much in flux at Microsoft, how can enterprise customers protect their business? Here are four steps.

1. Be audit ready if you have an Enterprise Agreement.
2. Benchmark EVERY Microsoft purchase and renewal.
3. Negotiate blanket terms and conditions – flexibility does exist.
4. Quantify the cost and compliance impacts of new licensing programs and SLA terms and conditions.

These activities require mile-deep knowledge of Microsoft’s evolving licensing and subscription programs, as well as insight into areas where Microsoft is exhibiting flexibility at the contracting table. Those companies that lack this expertise in-house should look outside their four walls for external guidance. Microsoft is on a mission in 2015 and enterprise customers need to discern whether they will reap the reward or pay the price.