The Enterprise Agreement (EA) has been the cornerstone of Microsoft’s volume licensing business since the introduction of Software Assurance (SA) in late 2003. In moving its traditional productivity business to a cloud-based service offering, Microsoft has also modernized its vast product portfolio and evolved to a subscription business model, shifting away from the longstanding license and software assurance business model. As a result, the typical EA today contains far more subscription revenue than either license or SA revenue. If you’re a customer with pending EA renewals, you need to think about the implications of this trend.
For one thing, the number of customers actually consuming the upgrades they’ve paid for continues to be far below even modest Microsoft expectations. Microsoft is trying to address your historic inability to leverage your SA spend by redirecting you to cloud services, where they can more directly control consumption of productivity workloads.
In addition, you are likely getting unsolicited renewal offers that, while aligning with Microsoft’s “wish list,” rarely take into account your actual SA actualization profile. With many of the newer Office 365 services, Microsoft is pushing services to workloads where customers already have existing obligations.
In assessing the true price of doing business with Microsoft, you have to assess the eventual retirement of traditional SA. While SA has been a valuable program for a number of enterprises, far fewer customers could confidently state that they’ve benefitted tremendously from their SA spend. Indeed, many enterprises have wasted millions of dollars on SA by signing EAs that don’t align with their Microsoft technology adoption strategies, but are used mostly as a compliance hedge. As a result, you may well have paid for upgrade rights that you’ll never actualize – and your next EA renewal could be a last chance to take a vacation from the SA program.
Until now, the cost of dropping SA could prove expensive, since re-entering EA coverage down the road would require a license repurchase. But with both on-premise and cloud subscription offerings gaining prominence within the EA offering, updating access to current versions of the Office productivity solutions involves only a slight premium. You can even consider moving some portion of your EA licenses over to the new Microsoft Products & Services Agreement to preserve SA that has been successfully actualized and that has near-term deployment traction.
Microsoft won’t provide any meaningful guidance on how to optimize your SA spend during your next renewal, as their sole ambition is to drive you away from traditional SA and onto their cloud services. Moreover, we have seen quite a number of instances where the real migration efforts and cost are not properly disclosed and where customers have been placed into situations where they have no choice but to continue running on-premise solutions, even while paying the more expensive cloud services fees.
Microsoft will often position the cloud services option as a way to mitigate or eliminate out of compliance risk. While running Office 365 can make it somewhat less likely that unintended software installations can occur, customers need to understand and agree that the cost premium is proportional to any potential or historical compliance issues they experienced.
Unless you are already engaged and committed to a migration to Microsoft cloud, you need to carefully understand and plan your EA renewal around what work can be accomplished in the first 18 months of your renewal EA term. Unless you have at least 18 months of full production use of a new service, you will have overspent and not generated a reasonable return on investment.
Keeping SA to protect access to future upgrades is no longer a reasonable justification unless you have been able to deploy such upgrades within the first 18 months of their availability. Access to better priced subscriptions for both on-premise and cloud services means that you need to run the math comparing three years of SA savings to the much lower cost subscriptions needed for re-entry into the EA.
The only other potential reason to maintain SA is if you have done the requisite due diligence and planning around moving to Office 365. Customers do receive a discounted subscription fee (about 20 percent) if they are a current SA customer, but you need to ensure that all the migration details are accounted for, budgeted and properly staffed in order to maximize the number of months the cloud service is in full production.
Put simply, the best advice Microsoft customers can follow is: caveat emptor!
About the authorLouis joined the 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.
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.
