Microsoft Renewal Negotiations

Microsoft Renewal Negotiations

• Start Early: Begin 12-18 months before expiration.
• Assess Needs: Identify underused or needed services.
• Leverage Timing: Negotiate before Microsoft’s fiscal year-end.
• Consider Alternatives: Compare with Google Workspace or AWS.
• Engage Experts: Use licensing consultants for benchmarking.

Introduction Microsoft Renewal Negotiations

Renewing a Microsoft Enterprise Agreement (EA) or cloud subscription is critical for any organization. Microsoft renewal negotiations provide a unique opportunity to reassess software and service needs, optimize costs, and align IT strategy with future business goals.

However, the process can be daunting because Microsoft’s licensing structure and pricing can be complex.

This guide aims to help you navigate through Microsoft renewal negotiations effectively, ensuring that you come out with favorable terms, cost savings, and flexibility that suits your organization’s growth.

Understanding Microsoft Renewal Cycles

Microsoft agreements typically operate on a three-year cycle, with a renewal negotiation process that begins at least 12-18 months before the contract ends. This timeline is crucial for the following reasons:

• Pricing Pressure: The closer you get to the renewal date, the less leverage you may have. Starting early allows you to evaluate all options and establish a negotiation strategy.
• Microsoft’s Fiscal Year: Microsoft’s fiscal year ends in June, and sales teams are under pressure to close renewals by this time. This makes late spring a favorable time to negotiate better discounts or add services.
• Stakeholder Engagement: Early engagement allows you to involve all internal stakeholders, from IT and procurement to legal teams, to build a comprehensive plan.

Preparation: Laying the Foundation for Renewal Negotiation

Preparation is essential for a successful negotiation. Here’s how you should prepare for your Microsoft renewal:

1. Assess Current Usage
   • Identify Underutilized Services: Review current usage data to determine which Microsoft services are over-provisioned or underutilized. This will allow you to eliminate unnecessary costs during renewal.
   • Review Compliance: Make sure your organization is compliant with all existing agreements. Resolve any compliance issues before negotiations start to avoid penalties or unexpected costs.
2. Engage Stakeholders
   • IT, Procurement, and Finance Teams: Involve relevant stakeholders who understand the organization’s needs and financial constraints. Different departments may have different requirements, and their input can help you secure the best possible terms.
3. Market Benchmarking
   • Compare Offers: Research current market prices for similar products from competitors such as Google Workspace or AWS. Benchmarking against these competitors can provide leverage during negotiations with Microsoft.
   • Consider Third-Party Licensing Consultants: Engaging a Microsoft licensing consultant can help you understand current pricing trends and identify where you can save.

Microsoft Renewal Negotiation Strategies

1. Evaluate Alternative Licensing Models
   • Microsoft offers several licensing models, such as Enterprise Agreements (EA), Microsoft Products and Services Agreement (MPSA), and Cloud Solution Provider (CSP) options. Evaluate which licensing model best suits your organization’s current and future needs.
   • For instance, CSP models might provide more flexibility and monthly billing options, whereas an EA might be more cost-effective for large, consistent user counts.
2. Bundle Services for Volume Discounts
   • Microsoft offers discounts for bundling products such as Microsoft 365, Dynamics 365, and Azure. Bundling different services can help you obtain better pricing and volume discounts.
   • Unified Support: Consider combining support services with your license renewal. By including Microsoft Unified Support, you may get better pricing on both the licenses and support.
3. Negotiating Flexibility in User Licensing
   • Adjust User Counts: Microsoft typically expects a specific number of licenses to be renewed, often with room for growth. If your workforce is shrinking or expanding, negotiate flexibility for adjusting user counts during the agreement period without penalties.
   • License Reassignments: Negotiate to be able to reassign licenses between different users or locations to maximize the value of your existing licenses.
4. Cloud Consumption Commitments
   • Microsoft will likely push for a consumption commitment when renewing an Azure agreement. Be cautious about overcommitting to cloud spending. Instead, request a flexible commitment with room to adjust based on actual usage.
   • Azure Hybrid Benefits: Use Azure Hybrid Benefits to apply existing on-premises licenses to the cloud. This can lead to significant savings on Azure Virtual Machines (VMs).

Timing Tactics for Microsoft Renewals

1. Leverage Microsoft’s Fiscal Year-End
   • As mentioned, Microsoft’s fiscal year ends in June, and the months leading up to this are a good time to negotiate. Sales teams are often more willing to offer substantial discounts and concessions to close deals before year-end.
2. Engage Microsoft Early, but Not Too Early
   • Start engaging Microsoft early, but not too early—around 12 months before renewal is ideal. If you start too early, you may lose leverage, as Microsoft may assume you have no alternatives.
3. Maintain Competitive Pressure
   • Let Microsoft know that you are evaluating other vendors. This creates competitive pressure, and Microsoft may offer better pricing to retain your business. Mentioning a potential shift to Google Workspace or AWS can be effective.

Negotiating Support and Services

1. Unified Support
   • Microsoft’s Unified Support can be expensive, but bundling it into your EA renewal may result in discounts. If you are not fully utilizing Unified Support, consider negotiating support hours or requesting a customized plan that meets your needs.
2. Software Assurance Benefits
   • Software Assurance (SA) is an add-on that provides several benefits, including training vouchers, planning services, and deployment support. To make the most of this, negotiate for meaningful benefits to your organization, such as support credits or customized training.
3. Pilot Programs
   • If your organization is considering adopting new Microsoft technologies like Power Apps or Azure AI, negotiate access to pilot programs as part of your renewal. Microsoft may provide these services at a lower cost or even free to encourage adoption.

Reducing Costs: Optimization Opportunities

1. Right-Sizing Licenses
   • Downgrade Unused Licenses: If you have users with Microsoft 365 E5 licenses but only use basic features, consider downgrading to E3 or Business Standard licenses. Downgrading underutilized licenses can lead to considerable cost savings.
2. Azure Cost Management
   • Reserved Instances: If you are renewing Azure, consider purchasing Reserved Instances (RIs), which can provide significant savings compared to on-demand pricing.
   • Cost Management Tools: Utilize Azure Cost Management tools to monitor usage and adjust resources as needed, ensuring you don’t exceed your commitment.
3. Avoid Shelfware
   • Shelfware refers to unused software that was purchased but not deployed. Carefully assess your requirements before renewal to avoid purchasing unnecessary licenses. During negotiations, insist on usage rights matching your needs to prevent shelfware.

Dealing with Microsoft Sales Tactics

1. Don’t Fall for the “Compliance Card”
   • Microsoft may imply that your organization is out of compliance and use this as leverage to pressure you into renewing or expanding licenses. Always conduct your internal compliance review beforehand to understand where you stand.
2. Push Back on Deadlines
   • Microsoft sales teams may pressure you with seemingly urgent renewal deadlines. Resist and ensure you take your time to evaluate the agreement properly. Artificial deadlines are often a negotiation tactic designed to rush you into agreeing to unfavorable terms.
3. Work with Multiple Layers of Microsoft
   • Microsoft’s sales structure includes different layers, from Account Executives to Regional Managers. If you are facing issues, engage with different levels of Microsoft’s sales organization—higher-level representatives might offer better concessions.

Key Contract Clauses to Negotiate

1. Termination Rights
   • If you want to end the agreement early, negotiate for favorable termination rights. This flexibility is especially important if your IT strategy changes mid-term, such as migrating to a different vendor.
2. Price Caps and Uplifts
   • Microsoft may apply annual price increases on licenses. Negotiate a price cap to ensure minimal uplifts, ideally below 5% per year. Fixed pricing can save significant costs over the life of the agreement.
3. True-Up and True-Down Clauses
   • True-ups are typically required annually, but you can also negotiate for True-Down rights. These rights allow you to reduce your licensing count based on actual user numbers. This is especially useful if your organization has seasonal workforce changes.

Renewal Pitfalls to Avoid

1. Automatic Renewals
   • Avoid automatic renewals, which can lock you into unfavorable terms. Always initiate your renewal discussions early and treat each renewal as a fresh negotiation.
2. Overcommitting to Cloud Spend
   • Overcommitting to Azure consumption can lead to wasted resources. Always start with a manageable commitment and scale up based on actual usage.
3. Ignoring Alternative Options
   • Failing to consider alternative licensing models or cloud providers can lead to missed opportunities for savings. Always review CSP and MPSA options as well as competing solutions.

When and Why to Consider a Microsoft Audit Defense Strategy

Microsoft reserves the right to audit license usage, especially during renewal. Here’s how to handle audit-related discussions during negotiation:

• Preemptively Address Compliance: Conduct an internal audit and resolve discrepancies before Microsoft initiates an audit. This prevents unexpected penalties.
• Negotiate Audit Terms: Request that audit frequency and scope be clearly defined. Push for a remediation window to address any non-compliance before penalties are applied.
• Engage Legal Support: Involve your legal team early in the negotiation process to ensure that audit clauses and compliance expectations are manageable and documented.

Microsoft Renewal Negotiations FAQ

What are Microsoft renewal negotiations? They involve renegotiating terms, pricing, and commitments before an Enterprise Agreement or cloud subscription renewal.

When should I start my Microsoft renewal negotiations? Start 12-18 months before your contract expires. This provides ample time for internal assessment, negotiation, and stakeholder engagement.

How can I leverage Microsoft’s fiscal year-end? Microsoft’s fiscal year ends in June. Sales teams often have quarterly or yearly targets, and the months leading up to year-end can yield better discounts.

How do I optimize my licensing costs during renewal? Identify underutilized licenses, negotiate for the ability to downgrade unused licenses, and bundle services for discounts.

What are Azure consumption commitments? During renewal, Microsoft may push for Azure consumption commitments. Start with a lower commitment and negotiate for flexibility based on actual usage.

Should I engage an external licensing consultant? Licensing consultants can help you benchmark costs, identify savings opportunities, and navigate complex licensing terms.

How can I negotiate flexibility for user counts? Negotiate for the ability to adjust user licenses based on business changes without incurring penalties. This is especially useful if your workforce fluctuates.

What are True-Up and True-Down in Microsoft EA? True-Up means adding licenses annually based on increased use, while True-Down allows reducing licenses if usage decreases. Negotiate for True-Down to avoid paying for unused licenses.

How do I avoid overcommitting to Azure during renewal? Start with conservative cloud credit commitments and scale them as needed. Overcommitting can lead to underutilized, costly services.

What should I do about underutilized licenses? Identify users with over-provisioned licenses and downgrade them to a more cost-effective tier. This helps optimize licensing costs.

How do I deal with Microsoft’s sales tactics? Resist artificial deadlines, seek multiple contacts within Microsoft, and use competitive alternatives to strengthen your negotiation position.

Is Unified Support worth including in the renewal? It can be costly. Bundling it with the renewal may yield better discounts. Evaluate support needs carefully before deciding.

Can I cancel automatic renewals? Yes, ensure that your contract does not include automatic renewals without review. This allows you to renegotiate terms at each renewal.

What are Software Assurance benefits? Software Assurance offers training vouchers, planning services, and deployment support. Negotiate for benefits that align with your specific business needs.

How can I benchmark Microsoft pricing? Use a third-party licensing consultant or research competitor pricing, such as Google Workspace and AWS, to understand whether you are getting a competitive deal.