Microsoft Licensing – Agreement Types
When referring to Microsoft Agreements, most people mean the Microsoft Enterprise Agreement (EA) or Microsoft Enterprise Subscription Agreement (ESA/EAS). The focus of this article will be these two agreements but this does not necessarily mean that the Microsoft Enterprise Agreement is suitable for all businesses. In fact, for most SMBs, other alternatives such as the Open-Value, Cloud Solution Provider (CSP) or Microsoft Products and Services Agreement (MPSA) are better suited for their needs.
Before proceeding with how to make the most out of your Microsoft EA renewal, it would be prudent to provide a summary of the various Agreements and sub-Agreements available.
Microsoft Enterprise Agreements
The Microsoft Enterprise Agreement (EA) is a framework agreement for license purchases designed for large organizations and the discount rates are typically the highest out of all the agreements. The trade-off for this is that you must commit to purchase a product within the Enterprise Products pool for all your Qualified Devices/Users and all your license purchases include Software Assurance (SA). Simply said, you must buy certain licenses for your entire organization as well as support, regardless of whether it is actually required.
Payments and additional license purchases are made annually (known as the “True-Up” process). Purchases can still be made mid-term if required.
There are 3 types of Enterprise Enrollments beneath the Microsoft Enterprise Agreement:
- Enterprise Enrollment: In effect, when people refer to a Microsoft EA, they often refer to the Enterprise Enrollment that encompasses the licensing for their client-based products.
- Enterprise Subscription Enrollment: This is the subscription variant of the Enterprise Enrollment, often also referred to as the Microsoft Enterprise Subscription Agreement.
- Server Cloud Enrollment: This is a sub-enrollment is targeted for Server based products under the Microsoft EA and has both perpetual and subscription variations.
In many organizations, you will have a separate Enterprise Enrollment for your client-based products and a Server Cloud Enrollment for all your server-based products.
The key difference between an EA and the ESA are:
- All licenses made under the ESA are subscription based (even if the license model for a product is perpetual by default)
- The ESA provides additional flexibility in the ability to reduce (“True-down”) licenses on an annual basis. However, the cost of an EA typically ends up cheaper than an ESA in the long term.
MPSA and Select Plus
The MPSA is intended as transactional agreements for companies with more than 250 users while the Select Plus is “simply” the predecessor to the MPSA.
The aim of these agreements is to allow organizations to make ad-hoc license purchases for products outside of the Enterprise Pool or to purchase licenses without SA. However, for some large organizations, the higher discounts from an EA and the additional costs of coordinating MPSA purchases often offsets the benefits.
Open and Open Value
Open and Open Value agreements are simply the agreements targeted at small organizations. The agreements can be transactional like the MPSA or committed like the EA (for better discount rates) and the payments range from being upfront or spread (if there is a commitment).
Cloud Solution Providers (CSP)
CSP agreements are effectively an alternate channel for companies to purchase Microsoft Online Services and other products on a subscription basis. Typically, the key differences of a CSP are:
- The payments are monthly as opposed to annually
- You have the ability to true-up/true-down on a monthly basis as opposed to annually
- Support is provided through the partner and not Microsoft
While not specifically targeted at SMBs, the high flexibility in payment and license purchasing makes it more suitable for them while the volume discounts offered through an EA often make it more viable for larger organizations.
Planning for your Microsoft Enterprise Agreement (EA) Renewal
While the focus will be on Microsoft Enterprise Agreement (EA) renewals and Enterprise Subscription Agreement (EAS) renewals, the principles mentioned below also apply to other agreement types.
Understanding Your Environment
If you have ever read an article relating to Software Renewals, one of the first things they always tell you is to understand your environment. This is no different for Microsoft license renewals – in order to have meaningful discussions with Microsoft you must have a clear understanding of your current environment, future projection and overall business strategy.
Starting with your current environment, it is necessary to understand your license requirements. Invest the necessary resources to understand the Microsoft Licensing metrics, your current contract and the Microsoft Product Terms. This will allow you to create an initial Effective License Position (ELP) that will act as your baseline for any planning and discussions with Microsoft.
The most important piece of advice at this stage is to perform this assessment ahead of time. Unless you have a mature SAM program and optimal processes, it is highly likely that the figures shown within the ELP are higher than anticipated and you will have several actions to bring the costs back in line with budget:
- Have Windows Servers been appropriately ring fenced within clusters to minimize Datacenter licenses?
- Have unused copies of software been removed from the estate or are they just sitting there, requiring licenses despite the lack of utilization?
- Do users really require the editions of the software they have deployed? Of particular note, do developers really need Visual Studio Enterprise or can they simply utilize Professional (approximately 20% of the price)?
- Have you considered implementing dedicated SQL Server clusters?
- Did you spend sufficient time investigating your SQL Server instances and confirm whether they need licenses?
- Is your analysis purely reliant on SAM Tools? Most Tools are incapable of accurately portraying the optimized license requirements, instead just portraying a point-in-time view.
- Do you really need SA for all your licenses? When was the last time you raised a support ticket or updated the version for the legacy physical servers that are “too heavy to lift”? Have you considered implementing a supplementary MPSA to the EA?
- Are there any migrations occurring? Have you accounted for the licensing correctly?
- Are you leveraging any of the BYOL SA benefits (License mobility through SA, Azure Hybrid benefit)?
The aim is to create the bottom line license requirements for your current estate which will act as the basis of your Microsoft EA renewal discussions. As with all negotiations, there is always a chance that they fall through so by minimizing your current requirements, you are effectively minimizing the “worst case” situation.
What does your future estate look like?
Knowing what you currently require is only one side of the coin. Equally important is understanding what your plans are for the IT estate.
- Are you currently in the process of migrating to the cloud? Do you have an estimation of how many workloads will be migrated? Are you in a position to be able to leverage any SA benefits such as Azure Hybrid Benefit or License Mobility through SA?
- Do you wish to remain on perpetual licensing to maintain full control of your assets?
- Is there a planned hardware refresh?
- Are there any planned acquisitions or divestitures?
- Are there any upcoming projects that will require a significant software investment?
- Are there any high-level consolidation plans? (e.g. migrating all BI tools to Tableau)
- Has IT security mandated the update of all software to supported versions?
- Is there a targeted cost reduction value that needs to be achieved?
Is it possible to model the license requirements for the future estate? This does not have to be perfect by any means but being able to assess the “by-the-book” requirements will provide insights into:
- Cost estimations
- Commercial levers
- Areas where the existing license models are sub-optimal
Iron out any issues and potential contradictions before you start the negotiations.
- Have management considered the cost impacts of any IT security mandates when they set a target for cost reductions?
- Are any planned migrations going to occur within the next 3 years? Is it even worth committing to any purchases now before the licenses are even going to be used?
- Is there any point in negotiating with Microsoft ahead of a major divestiture or should your focus be to negotiate a grace period?
Invest the time to understand your goals to minimize any potential wasted spend. Too many agreements are negotiated for short-term benefits that pose issues in the future or have committed too aggressively to a migration plan that was not realized during the term of the agreement, both resulting in significant cost increases over time.
If you would like support with any aspect of your Microsoft license optimization please reach out.
Developing a negotiation strategy for your Microsoft Enterprise Agreement (EA) renewal
So now you have a good indication of where you are and where you want to be. Now to figure out how you can get there with a robust contract negotiation strategy.
Goals and flexibility
Define a clear set of goals prior to any engagement with Microsoft. Having a clear set of goals provides structure for the discussions, making progression far more likely than simply going in with a generic cost reduction requirement.
A piece of advice that I rarely see get mentioned is to actually work with Microsoft, lay out what you wish to achieve and let Microsoft structure the agreement. While this may sound like advice from a salesman, the intention is to set the groundwork for a more custom agreement structure that can “easily” be molded and shaped. By doing it this way around, you immediately gain insight in the areas of flexibility, expediting the process significantly and buying you time to focus on the areas that require further negotiation. Note that this does not mean to invite Microsoft in for one of their “assessments”, no matter how these are marketed, they are just disguised audits.
Of course, this is sounding rather utopian but, frankly, the alternatives are to either start from your previous framework and Frankenstein on all the shifts in technology and business strategy from the last 3-5 years or to end up with the “one-size-fits-all” structure that Microsoft have convinced customers is the norm.
While it helps to be a Fortune 500 or FTSE 100 company, you will be surprised at how many concessions are granted to the smaller businesses. Sure, there will always be elements of negotiations that will seem like a battlefield but things are rarely as rigid as they appear to be despite Microsoft’s constant push to standardize terms and pricing.
In all of this, do not lose sight of your baseline (i.e. your current requirements). It is easy to be distracted talking about all the goals and negotiating a forward looking contract but very often you will find that the cost starts creeping up, so know when to draw the line – is it really worth it to end up with a deal where all your targets are achieved but you ended up paying up front for functionality that you won’t use until years 2 or 3 of the agreement?
Identify Commercial Levers
The majority of commercial levers will be case dependent – for example, perhaps you are planning a project that requires the rollout of a new virtual environment where you are weighing up Microsoft Hyper-V against VMware vSphere. However, there are a couple of levers that almost everybody can utilize.
Microsoft’s transformation from an on-premise software provider to a leader in Cloud has altered how it does business with LORGs. Customers can leverage Microsoft’s focus of moving enterprises to the cloud in their negotiations.
A large amount of focus of any account manager currently is to sell you some amount of Azure and O365 services (obviously, the more the better). This is one of the most obvious commercial levers to be manipulated in current discussions. For example, committing to a slightly higher cloud spend to gain a concession on some critical on-premise element.
Do not underestimate your company name. Microsoft’s success in its transformation can largely be attributed to successful key clients paving the way – of course everybody has heard of the (almost successful) JEDI deal but what paved the way were the likes of the $2bn AT&T deal and the 2017 spike with notable clients such as Hershey, Maersk and UBS. Each success case further cements investor trust and increase share value so leverage your brand as much as you can – it could even be a tipping point for you to achieve certain concessions.
Avoid getting carried away in the heat of the moment and always carry out the appropriate due diligence throughout the whole process. Below are a few common oversights that are far too prevalent at each stage.
- Do not assume you have full coverage of an inventory tool or believe in anecdotal “evidence”. Too often do customers believe they have full visibility only to find out that a portion of their estate is missing from their reporting. Validate your data points against your CMDB, Active Directory and even Anti-Virus software along with any know-how.
- Invest the time to understand the license metrics: do you truly understand what a CPU license is and how to apply it in a virtual environment? Are you aware of the minimums for Core licenses? Are you aware of all the rights granted by SA beyond just version upgrades and technical support?
- SAM tools should only be used as a guide. Many tools struggle with providing the optimized figures and some products have notable discovery/reporting issues (e.g. SQL Server editions, Core counts for some CPU types, potential RDS requirements). At the very least, sample check some of the findings if you are forced to solely rely on these tools for your renewal/true-up.
- Ensure all relevant business stakeholders are involved early and have full visibility. Nothing is worse than finding out at the 11th hour that the deal you signed completely conflicts with an IT security mandate or planned migration project, resulting in significant wasted spend.
- Consider involving 3rd party experts to support, not just with the technical licensing aspects, but also to provide independent IT procurement expertise or SAM process improvements. The insight they can offer is indispensable so, if budget allows, involve them early and make them aware of what you wish to achieve.
- Do not be too aggressive on any timeline estimation for major projects or migration. This is a trap that many seem to fall into in order to please management without realizing the amount of wasted spend this results in when you commit to spend for functionality that is not realized until the 3rd year of your agreement.
- Insist that all notable agreements and understandings be documented. Ideally, everything agreed should be stated within the contract as a clause otherwise you may end up in conflicts between intent vs the Entire Agreement clause. Under no circumstances should you trust verbal statements, no matter how concrete they sound – people can always leave and the successors are under no obligation to follow their predecessors, the only binding documentation is the contract.
- Spend the time to review the fine print. No matter how confident you are with the agreement and the negotiation lead-up to this point, the clauses may not 100% reflect what was agreed (whether intentionally or unintentionally). Furthermore, it is always advisable to get a legal review if time permits.
- Don’t overshare details. While I advocate working with Microsoft to construct the deals, be careful to not divulge too much and certainly do not share any deployment data with Microsoft.
- Try to rationalize and benchmark the discounts. Rarely is Microsoft’s “best-offer” actually the best-in-class discount and agreeing to a subpar discount (regardless of external factors such as timing pressures) will set the precedence for future deals.
You can read more about how our Microsoft licensing experts achieved significant cost savings through license optimization and negotiation support.
Timeframes for your Microsoft Enterprise Agreement (EA) renewal
As should be apparent by now, one of the most critical aspects for a successful Microsoft EA renewal is to give yourself ample time, do not leave it until the last minute. Depending on your Software Asset Management (SAM) process maturity and analytical capabilities, the preparation should start anywhere from 6 months to 3 months in advance of your renewal date (of course for more extreme deals, you would need to start the negotiations even earlier).
Of all the elements that go into preparing for a Microsoft EA renewal, the only aspect that poses issues if you start too early is the internal deployment assessment/ELP stage. In a dynamic environment, the data may become significantly outdated by the renewal date. However, by getting key stakeholders involved early and passing the various approval stages for the data collection ahead of time, you can certainly streamline the process.
An exercise in cutting losses
Unfortunately, most of what has been described may be unachievable for the average business due to lack of budget or licensing knowledge, or where SAM processes may not be sufficiently developed. What does this mean then?
Well, for most businesses it comes down to what is actually pragmatic and an exercise in how to cut losses effectively while they build up the SAM processes year-on-year to minimize wasted spend. Identify where your SAM strengths and weaknesses are and act on them rather than attempt to achieve everything at once:
- If you do not have enough engagement to be able to roadmap your future, spend your resources just optimizing the current estate for the best like-for-like renewal possible.
- Set up a task force to identify and manage which optimization opportunities are realizable within the given time frame.
- Many activities require active management and pressure, a common trend is for deployment investigations or technical remediations to drag on as a result of end users de-prioritizing these items.
- Perhaps you do not have the technical data available to judge whether you can ring fence SQL Servers and Windows Servers without business impact but your software metering is enabled within SCCM for client software.
- Look to gather the appropriate data for the Server Infrastructure for next year’s true up and focus on removing unused instances of Visio, Project and other desktop software for some immediate cost reductions.
- Are there any processes in place to manage O365/M365 license allocations?
- Do you have any Role Based Access Controls (RBAC) in place?
- Do you have a team dedicated to managing O365/M365 licenses?
- In many situations, the only pragmatic way of licensing your enterprise users would be through the use of HR reports and purchasing a buffer to prevent business impact. You will have to accept the overspend in this area in order to free up the resources to work on other areas but look to implement a process to manage the user licensing to minimize the waste in subsequent years.
- Do you only have minimal resources for license optimization? Focus on reviewing the most expensive products and perhaps rely on some of the more generic reporting from tools for the lower value items (coincidentally, SAM tools also tend to be more accurate for these items).
If you would like help assessing your current SAM process maturity and prioritizing your way forward we offer a 2-day SAM Surgery which includes best-in-class ITAM process maps aligned to ISO 19770-1: 2017.
While many think that a Microsoft renewal is a one-time exercise every 3-5 years, this is only true in name. To truly minimize costs, it is necessary to implement the appropriate SAM processes and controls while also carrying out periodic ELPs.
The periodic ELPs can be used to monitor compliance over time and act as an early alarm system while also doubling as another metric to monitor the success of a SAM process.
- Still seeing software sprawl? Review your re-harvesting and software metering processes.
- Are VMs still being over-provisioned? Look to revisit your approval and provisioning processes
- Are you identifying a large number of EoL software? Is IT security aware? (not only of the cybersecurity risks but also of the potential costs involved with Extended Support Update subscriptions that may be required in the future)
Leverage the difficulties of a Microsoft Enterprise Agreement renewal to highlight the importance of a robust SAM program. Without the appropriate processes, the only outcomes for a Microsoft EA renewal are either wasted spend or significant overhead in a last minute exercise to reduce the cost so it is back in line with budget.
In summary, our key recommendations to help you plan your Microsoft Enterprise Agreement (EA) renewal and achieve the optimal result:
- Do not start preparing for the renewal at the 11th hour.
- Involve all stakeholders early.
- Assess your current license requirements and identify which optimization opportunities are achievable.
- Identify your goals, commercial levers and plan your negotiation strategy ahead of time.
- Don’t set unreasonable goals, look to improve your SAM processes continuously year-on-year.
- Carry out periodic assessments to minimize sprawl and limit last minute scrambles.
If you require any further information or assistance regarding your Microsoft Enterprise Agreement renewal or any other licensing topic, please do not hesitate to contact us.