Over the past three years, Microsoft has been stealthily transitioning its product support model from its legacy Premiere Support to a new “modern” support model called Unified Support.
Premiere Support was a very specific labor rate-card model that allowed end-user organizations to buy blocks of hours to correspond with various levels of Microsoft technical support. End-user organizations could then manage their support incidents and track how they were drawing down their escrow of hourly pre-paid support.
Premiere Support was complemented by the customer’s enrollment in Software Assurance (SA) insofar as end users could convert their standard SA benefits into the equivalent support hour to extend or fund the number of hours to which their Premiere Support agreement entitled them. End users could review support incident histories and use that data to refine their future Premiere Support agreement commitments, which was a workable solution for most of Microsoft’s Premiere customers.
Of course, support revenue – along with software and online service revenue – is under constant scrutiny for optimization and growth. Growing support revenue by selling hours and rate cards didn’t “cut it” for Microsoft, so it has developed a newer (and less transparent) alternative.
Enter Unified Support.
Unified Support eliminates the hours and rate-card model and replaces it with a fee based on a percentage of the agreement cost and all of an organization’s other Microsoft spend dating back five years. To make this an even more complicated model, Microsoft has divided spend inputs into three categories: 1) server spend, 2) applications and systems spend, and 3) Azure spend.
The spend associated with each of these categories is subtotaled and a unique percentage is applied to determine its part of the Unified Support. Then all the categories are totaled to determine the complete Unified Support contract value, which is considered the baseline. This sizing and pricing process is “fixed” by Microsoft and the end user has no part in determining whether it wishes to include all categories or not.
Currently, no comprehensive mainstream third-party support options for Microsoft tools and solutions exist in the market, and end users are left with little choice if they want to confidently support their Microsoft usage and deployments. In a number of recent engagements in which we assisted client organizations with Microsoft agreements, the company was evasive about its methods for arriving at a Unified Support offer price. In one instance, the company told the customers the pricing process is proprietary, which may be a red flag.
We believe a support pricing model should reflect an indexed approach in which the support percentage decreases at certain marginal tiers. Let’s look at an example. Say an enterprise client spends up to $2 million with Microsoft and pays a support percentage of “x”. Logic dictates that an organization with incremental Microsoft spend running from $2 million to $4 million would incur a percentage expense of something less than “x” (no more than .9x) with several added spend margins in which the incremental spend is assessed using a decreasing percentage (to a floor of .5x).
However, Microsoft seems to be applying a fixed percentage to all spend, which means support costs increase linearly with increased spend. The company is adding expense for each Office 365 user, for example, even though it does not incur more support costs with each added user once an Office 365 tenant is established.
As a specific Unified Support category, Azure seems to be the most aggressive in terms of support costs, coming in at 10.5 percent of overall Azure spend. This effectively amounts to an “Azure tax” and nullifies any price discounting the end user may have negotiated. Many end users now are questioning how they can justify incremental Azure spend if every dollar they spend is subject to a 10.5 percent support tax.
Unified Support is not designed as a multi-year contract but instead is designed to reset each year in an effort to sweep all of the year’s spend into a “true up” for support moving forward. For example, if a customer spends more during a year than the established baseline, Microsoft will calculate the incremental Unified Support costs in arrears and invoice the end user for the amount of spend above the baseline. This new amount will then become the updated baseline for the next year of Unified Support.
The current Unified Support model is a “work in progress” for Microsoft with many first-generation end users unknowingly serving as beta testers. It’s worth noting that, while product and support costs were separate in the past, they are intertwined today. This means enterprises must prepare more carefully as they negotiate commercial terms for their Enterprise Agreement and pay particularly close attention to the cost proposals for Unified Support. Contact us to learn more.
About the author
Louis joined the ISG team in early 2014 after nearly 20 years with Microsoft Corporation. Louis has compiled a track record of Enterprise client success underpinned by customer focus, strategic thinking, organizational agility, problem-solving acumen and impactful knowledge transfer which has established his reputation as a Microsoft licensing expert.
During his time with Microsoft, Louis worked in both the Consulting Service Group as a Practice Manager and in the Worldwide Licensing and Pricing Group as a Director responsible for designing and negotiating Global Volume Licensing relationships. As a highly effective and influential communicator/negotiator, Louis has delivered consistent business results across both revenue and quality of service performance targets.
About the author
Louis Pellegrino
Louis joined the ISG team in early 2014 after nearly 20 years with Microsoft Corporation. Louis has compiled a track record of Enterprise client success underpinned by customer focus, strategic thinking, organizational agility, problem-solving acumen and impactful knowledge transfer which has established his reputation as a Microsoft licensing expert.
During his time with Microsoft, Louis worked in both the Consulting Service Group as a Practice Manager and in the Worldwide Licensing and Pricing Group as a Director responsible for designing and negotiating Global Volume Licensing relationships. As a highly effective and influential communicator/negotiator, Louis has delivered consistent business results across both revenue and quality of service performance targets.
