Given current budget pressures for many IT departments, many organizations are evaluating whether or not they should keep their Microsoft Enterprise Agreement (EA), which comes with mandatory Software Assurance (SA) coverage on all products. Microsoft has raised the minimum quantity to purchase an EA from 250 to 500 licenses which will affect a number of midmarket firms. Furthermore, with the push to the cloud, a significant number of companies will have to make the EA renewal decision over the next couple of years.
Being able to reduce spend on vendor contracts is high atop the wish list for organizations at a time when some are cutting back on training, travel, and even staff. If an organization is renewing its agreement without any plans to upgrade to the most current version of software available, it could be investing in Microsoft’s future before its own. When an organization opts for an agreement with SA, it is buying an investment for the rights to future upgrades and some product-specific benefits. With the uncertainty of what’s to come and whether the organization will actually need the upgrades, buying SA in this economy is akin to buying shares of stock in the market – it is hard to predict if the investment will pay off one day.
EAs make sense for organizations committed to running the most current version of every Microsoft product (upgrade path of 3-4 years) or are using cloud subscription services. If the organization is opting for a five-to-six-year hardware refresh rate, it may make sense to have Microsoft licensing follow suit. At that upgrade frequency, simply purchasing a license every 5-6 years will be cheaper. Further, the organization could be locking itself into a three-year agreement for a certain number of employees that may actually decrease over time. If employee count is shrinking, locking into a contract for the next three years based on today’s employee count is cost prohibitive.
Arguments for Reducing Spend on the EA
Organizations should consider the following arguments when renewing their Enterprise Agreements:
An EA requires a set minimum of desktop coverage. Buying a platform across the entire enterprise can lead to licensing more software than is needed. A platform EA requires a site license that covers Office, Windows upgrade, and a suite of Client Access Licenses (CALs) for all qualified desktops in the organizations. Every user in the organization may not require access to the same version of software, and as a result, the organization ends up over-licensing and overspending. A non-platform EA option does exist and is called a Component Enterprise Agreement, requiring at minimum one enterprise-wide product.
An EA effectively charges the organization for every version released. The large bulk of the cost associated with an EA is the upgrade rights. On an annual basis, SA coverage, which is mandatory on all products in an EA, tacks on 29% to desktop licenses and 25% to server licenses. Paying for an EA entitles the organization to every version released, and if the organization doesn’t have the time or resources to upgrade every three to four years, they could be paying for licenses that are never used. Organizations with a five to six year upgrade plan should not purchase an EA.
An EA comes with more legal costs and involvement. EAs require more documentation, such as a Master Business and Services Agreement, a volume agreement, and an enrollment for each affiliate. For organizations with a history of mergers and acquisitions, the key piece to be aware of is the box that was checked for who the Enterprise Agreement covers within the organization. Microsoft could legally make you true-up licenses for subsidiaries even though they may not need an EA.
An EA factors in some other benefits that may not be used. An EA comes with many of benefits and throw-ins that SA coverage brings. However, if the organization currently does not make use of these benefits (or even know what they are) it likely won’t need them later this year nor will anyone notice if they are no longer available.
An EA does not come with extra support. One of the biggest misnomers is that canceling an EA means loss of support. This is not true – an EA is not tied to support and customers will still get access to patches and can purchase additional support from Microsoft or its partners.
Upgrade rights earned live on past the agreement. Many customers mistakenly believe that if they do not renew their EA, they will lose out on the upgrade rights they earned during the course of their agreement. This is not true – if a new version was released during the course of the agreement, the right to upgrade does not expire when the agreement expires. For example, if the organization is still running Windows 7, Office 2010, Windows Server 2008R2, and Exchange 2010, and doesn’t plan on upgrading to the most recent versions until later, it makes no sense to spend money today, for future versions, when the organization is not on the most current products. If this sounds familiar, it may be an indication that an EA is not the right fit.
Case Study: EA Renewal Cost for a City Government
The IT Director at a city government was recently faced with the EA renewal decision. His reseller gave him the following quote for renewal of 500 users, the costs being entirely Software Assurance only.
SA-Only Annual Renewal Costs:
500 MS Platform (Office Pro Plus, Windows OS, CORE CAL)
Other Desktop Licensing
Total Annual SA Cost
After taking a closer look, the IT Director realized that the organization was still using Office 2010, and had been paying an annual fee of $46,083 a year for something they had not upgraded in seven years. Furthermore, the organization was planning on upgrading to Windows Server 2016, Exchange 2016, and SharePoint 2016 over the next two years, but had not yet taken advantage of its already earned upgrade rights. Given that it has the rights to upgrade to these version at any time even if it lets its EA lapse, the organization decided that there was no need to keep the EA since it would be essentially be paying for the rights to future versions which it had no need for in the foreseeable future.
Other Licensing Cost-Cutting Options
If the organization has determined that it should renew its EA, consider the following options in order to reduce overall costs:
Look to reduce the number of qualified desktops. Since an EA requires blanket coverage on all qualified desktops, an organization should evaluate whether there are desktops that are not qualified and can be taken out of the total desktop count. Examples of non-qualified desktops are line-of-business machines, order entry machines, single task stations that run non-Microsoft software, kiosks, employee-owned PCs, Linux machines, and thin clients. If the organization is on the border of a discount level, then reducing its number of desktop count may push it to a lower level, so factor this into the decision on what to count.
Leverage the current buyer’s market. Microsoft has been offering a number of discounts recently on common cloud products. Recent examples have been discounts ranging from 10-33% on O365, Azure, and Dynamics 365 when purchased through MPSA or EA agreements.
Utilize the one-time one-year renewal option. An organization can renew an EA for one year only once, however, if the future is uncertain, now may be the time to use this shorter renewal option.
Partially renew the EA contract. If an organization does not require SA coverage on all products, it can elect to renew a component of its EA for a subset of products and combine remaining purchases with a MPSA Agreement. Alternatively, it can renew the products it wants SA coverage with via a MPSA Agreement and do it only for certain products or for some of its users.
If the organization decides that there is a business case for SA, many of Info-Tech’s clients have been successful in negotiating deeper discounts in their renewal agreement by threatening to cancel. Start the negotiation process at least six months in advance and use the following leverage points:
Show knowledge of alternatives to the current licensing model without committing to SA. Knowing the organization’s usage and upgrade plans is crucial.
Demonstrate the organization’s ability to wait for an OS upgrade with a hardware refresh. Using the Pro version of the desktop OS that comes OEM eliminates the need to purchase Windows with SA.
Show a penchant for a free, open-source platform.
Many organizations are wondering how to reduce their spend when renewing their Enterprise Agreement with Microsoft, especially with it being close to Microsoft’s end of year in June. Given that this decision represents a significant spend, careful consideration must be given to the arguments for and against the EA renewal, especially with the push to the cloud.