In the past years Microsoft’s revival and success story seems to know no limits. Cloud Revenue as well as Market Share is growing strong and in recent reporting Microsoft published profitability numbers which show that whilst still lower than in the on-premise world – Microsoft is starting to make (more) money on Cloud. How does this affect your position at renewal and how can you get the best deal?
In a Cloud and Online Services World, traditional negotiation tactics like offsetting Microsoft’s solutions to other vendors to get discounts isn’t going to suffice to achieve the best possible price. Unusually high discounts were typically granted as an “introductory offer” to win against potential competitors. As mentioned, profitability on Online Services is growing rapidly. We see this as an indicator that discount percentages will probably be lowered over time and at renewal.
Microsoft have not stopped at their journey of increasing client’s cloud adoption. Every week we experience that Microsoft aims to transform its clients to (preferably all three) it’s Cloud offerings; Microsoft 365 (O365, EMS and Windows Client Bundle), Dynamics 365 and Azure). From a negotiation perspective, existing cloud customers (2nd Generation) and new cloud customers (1st Generation) are treated differently and it will be important to understand where you stand:
Which type of Microsoft Client are you?
- 1st Generation Cloud client, primarily or sometimes even 100% on On Premise licenses or
- 2nd Generation Cloud client, who has already transformed it’s licenses for Microsoft 365 E3 or prior versions and have moved one or more workloads to the cloud already. We need to differentiate whether you are a “real” Cloud client – a client who is consuming cloud workloads or whether you are a “licensing only” Cloud client – using online licenses as licensing vehicle only, but not deployed Cloud.
Organisations who stand at the beginning of Microsoft’s Cloud journey as well as Clients who may have licensed Cloud but are not consuming Cloud Services are in a stronger negotiation position due to having viable options and solutions from vendors other than Microsoft to chose from.
Even with no or limited Cloud deployments, chances are that your renewal will comprise of Cloud Licenses and potentially even the all-inclusive M365 E3 bundle. Clients sometimes express concerns to commit to a one-vendor Cloud strategy out of fear of being locked-in and finding themselves in a weaker negotiation position at renewal. And to a certain extent this is correct, obviously depending on how much Cloud has been adopted.
There’s a high probability that you are a 2nd Generation Cloud Client who already has partial Cloud Deployments – does this mean you are locked-in and can expect your online spend to continuously increase? – Not necessarily.
The most important point is to understand the current usage, the deployment plan and the requirements for user profiles as well as the cloud offerings available to your organization – of course there is an “all inclusive” license model that covers all users for most workloads but that does come at a cost. Microsoft has a range of Cloud bundles, and understanding specific requirements aligned to users, as well as what each bundle comprises, can help optimise spend before entering into Microsoft negotiations. We have previously highlighted the Microsoft F1 offering which may be suitable for some of your workforce with limited requirements.
We therefore recommend that time is spent on user profiling, usage review, FTE leavers / movers process and understand which workloads you really require and which workloads you may use or plan to use from alternative providers. It is also important to consider your current investment in alternative vendor solutions as part of the overall spend. You may also still own legacy licenses that may cover some requirements for a specific period into your next contract even if you decide to continue with a cloud contract.
For Iaas / PaaS the Azure usage / spend should be carefully monitored and continuously optimized. Azure costs can easily spiral out of control and you won’t know it until it has happened.
In summary – if you are using cloud, simply threatening to “walk away” is not necessarily a viable option nor is it a guarantee for a great commercial price. Microsoft have an increasing confidence in its cloud platform customer base and are increasingly more restrained in its discounting principles. It is important to be fully aware of what the current and future requirements look like in order to establish a strong negotiation position for your next contract.
As part of our engagements, we conduct workshops with our client’s business and technical stakeholders to document the strategy and deployment plans per product category which will build the basis of your contract negotiation. Please contact us if you would like to learn more about our Services.