Microsoft’s Enterprise Subscription Agreement has been around for decades. But it’s long been overshadowed by its perpetual licensing counterpart, the Enterprise Agreement – the agreement of choice for enterprise customers for many years.
The Microsoft EA made a lot of sense when offerings were largely perpetual licenses – think Office Pro Plus, Core/Enterprise CAL, and the Desktop OS. At the end of the EA term, customers had the option not to renew their EA, take a Software Assurance vacation, and ride out the perpetual use rights of the products they licensed.
Subscription licensing obviously changed that, and Microsoft certainly wasn’t the first enterprise software vendor to take this route. In 2011, Microsoft introduced Office 365, which was its first major foray into subscription-based licensing. Customers only had rights to the product as long as the subscriptions were active.
What is a Microsoft Enterprise Subscription Agreement and How Does it Differ from a Microsoft EA?
Today, Microsoft’s offerings are predominantly offered through subscription-based licensing, especially for its key products and services. As a result, Microsoft’s Enterprise Subscription Agreement (ESA) has emerged as a particularly versatile licensing vehicle for many customers.
The Enterprise Subscription Agreement’s structure differs from the traditional Enterprise Agreement in that only the first year’s order is formalized on the Customer Price Sheet. In comparison, the EA’s Customer Price Sheet has lists orders for all three years. With a Microsoft ESA, the process for second and third-year orders involves the customer giving their license counts to their licensing solution provider (LSP), who places the order with Microsoft on their behalf.
Advantages of a Microsoft Enterprise Subscription Agreement (Microsoft ESA)
The real advantage of the Enterprise Subscription Agreement is that the license counts are ‘reset’ on an annual basis, up or down, with the baseline remaining at 500 seats. Organizations can add or remove users, products, or services during the term of the agreement to match their current needs and changing requirements. They only pay for what they use.
Another important distinction between the Enterprise Agreement and the Enterprise Subscription Agreement is how and when the future pricing table in the Customer Price Sheet is leveraged. During the term of an Enterprise Agreement, if a customer’s user count grows and qualifies for the next pricing tier, they would have to wait until the agreement’s expiration to enjoy the next tier of pricing/discounts. With the Enterprise Subscription Agreement, in that same scenario, the customer can leverage the next tier of pricing as soon as their quantity qualifies.
Hiding in Plain Sight – Why a Microsoft ESA is Worth Considering
Why don’t more customers take advantage of the flexibility of the Microsoft Enterprise Subscription Agreement? In our opinion, it’s largely market awareness and seller motivation. Most Microsoft sales reps have little motivation to introduce ESAs as an option.
With an Enterprise Agreement, Microsoft has visibility into all three years of revenue. Furthermore, the customer only has the ability to add enterprise licenses – not reduce. There is a clause in the Microsoft Enterprise Agreement that states if the number of licenses covered by an Enrollment changes by more than 10 percent because of an acquisition, divestiture or merger, Microsoft will work with the Enrolled Affiliate in good faith to determine how to accommodate its changed circumstances in the context of their agreement. However, invoking this clause in real life has shown that Microsoft holds all the leverage.
It’s important to point out that the Enterprise Subscription Agreement is not a fit for all customers, especially those with perpetual licenses. But for those companies that have upgraded or purchase subscription-only licenses, the Microsoft ESA is worth exploring. Just remember – with little motivation for Microsoft to push the ESA, the onus is on the customer to inquire and evaluate whether it’s a viable option for their requirements!
Are you a large enterprise purchasing or renewing with Microsoft? NPI can help determine your best options for contracting and licensing Microsoft products. Contact us to learn more.
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